You might have noticed a flurry of new investment products that link sustainably themed funds with donations to nonprofit groups, from the NAACP to the National Wildlife Federation to the Susan G. Komen Foundation.
But before you invest in a mutual fund or exchange-traded fund (ETF) tied to your favorite charity, make sure that it fits within your portfolio, meets your investment goals and truly delivers a benefit to the nonprofit group with which it partners.
When comparing these funds with competitors, “consider the fund donation to be the cherry on top, not the main driver of the decision,” says Jon Hale, global head of sustainability for investment research firm Morningstar. “Don’t be seduced into a fund that doesn’t further your financial goals,” he says.
And look beyond a fund’s donation to measure impact. Start by taking a hard look at its management company. Does it actively partner with the nonprofit group it benefits to bring about change? Is it voting shareholder proxies and filing shareholder resolutions to further the nonprofit’s cause?
“ESG investing alone doesn’t create concrete, real-world impact,” says Leslie Samuelrich, president of Green Century Capital Management. “You need to pick funds that do shareholder advocacy.”
Green Century Balanced Fund
The concept of working hand-in-glove with nonprofits isn’t completely novel. Consider Green Century Balanced Fund (GCBLX), a member of the Kiplinger ESG 20, a list of our favorite stocks and funds with a focus on environmental, social and governance issues. Fund sponsor Green Century is owned by several nonprofit groups around the U.S., and its profits from fees support their environmental and public health goals.
Moreover, Green Century has for years engaged companies by filing shareholder resolutions, speaking with corporate executives and doing policy work. Apple, for example, Balanced Fund’s second-largest holding, announced in November that it would redesign its products to enable consumers and independent shops to repair devices and thereby reduce electronic waste, the fastest-growing global waste stream. Green Century was one of the main drivers of this “right to repair” decision.
All that engagement comes at a cost—the expense ratio for Green Century Balanced is 1.46%. But over the past 10 years, Balanced Fund’s 10.6% annualized return beat 83% of its peers, and it placed in the top 25% of similar funds over the past three-, five- and 10-year periods. (Returns and other data are through January 7.)
Simplify Health Care ETF
Simplify Health Care ETF (PINK (opens in new tab), $26) is another fund that has a strong investment thesis and aims to provide a significant boost to a nonprofit group.
The PINK ETF is actively managed by Michael Taylor, a trained virologist as well as a seasoned and highly regarded hedge fund manager. Simplify is donating all of its net profits from managing the fund, or a minimum of $100,000 per year, to the Susan G. Komen Foundation for breast cancer research.
Although the foundation’s reputation was tarnished in the past decade for high CEO pay and overhead, Komen has since improved its leadership, management and transparency, such that it has earned a four-star rating (out of five) from Charity Navigator and a Gold rating from Guidestar.
Simplify Health Care does not apply an ESG screen per se to its stock-selection process; even so, it earns a strong four out of five “globes” ESG rating from Morningstar. Top holdings include UnitedHealth Group and Pfizer. Launched in October 2021, the ETF has gained 4.5% since then, garnering over $30 million in assets. The fund’s 0.50% expense ratio is reasonable, given that it has such strong management.
Another plus for the fund is that healthcare stocks are often resilient in times of inflation. And the long-term demographics of aging societies are working in their favor. For those reasons, this fund could be a solid addition to a portfolio for investors looking to diversify into the healthcare sector.
Impact Shares NAACP Minority Empowerment ETF
Impact Shares, itself a nonprofit organization, manages a suite of sustainable funds in collaboration with leading nonprofits, including the NAACP, the YWCA and others. Impact has partnered with the groups to help design investment criteria and has pledged to donate 100% of net fee profits to them.
In the case of Impact Shares NAACP Minority Empowerment ETF (NACP (opens in new tab), $35), which tracks a Morningstar index designed to provide exposure to U.S. companies with strong racial and ethnic diversity policies in place, Impact has absorbed a portion of the management fee, lowering the expense ratio from 0.75% to 0.49%.
According to Impact Shares CEO Ethan Powell, the fund is almost at breakeven, at which point donations to the NAACP will begin. Although the donations will be important, Powell believes that an even greater benefit to these groups is the opportunity to engage with corporations alongside an institutional investor. In fact, Impact Shares hired a former senior director of the NAACP as chief engagement officer for the fund in 2020, and corporate execs have been reaching out to learn how they can better their racial equity scores so that their companies can be included in the fund.
Unlike many other funds that donate to specific causes, the ETF is not sector-specific. But it recently held a hefty 29% weighting in tech. The portfolio of large-company shares, topped by Apple and Microsoft, is a blend of growth-focused and value-priced stocks. Since its launch in July of 2018, its 19.8% annualized return outpaced the S&P 500’s 17.9%.
The funds above are far from the only ones partnering with causes you might hold dear.
The investment arm of New York Life Insurance launched a suite of ESG funds in 2021 that will donate the larger amount of 10% of net fees or $30,000 per year to specific causes. These include IQ Cleaner Transportation, which will donate to the National Wildlife Federation, as well as ETF index funds donating similarly to Girls Who Code, the American Heart Association and Oceana, an ocean conservation group.
Although the investment case for some of these funds is intriguing, the track records are still short, and investors who care about making an impact should note that the New York Life funds will not be engaging with companies beyond voting on shareholder proposals.
Expect to see more funds linking up with charities. The bottom line is that with any fund promising to donate fee income to a worthy cause, you will have to do some extra homework to make sure the pledge is more than just a marketing exercise.
Nonetheless, for investors who want to beef up donations to their favorite charities along with their portfolios, these new partnerships are worth watching.
Ellen writes on environmental, social and governance (ESG) investing and sustainability. She was an ESG manager and analyst at Calvert Investments for 15 years, focusing on climate change and consumer staples. She served on the sustainability councils of several Fortune 500 companies, led corporate engagements, and filed shareholder proposals.
Prior to joining Calvert, Ellen was a program officer for Winrock International, managing loans to alternative energy projects in Latin America. She earned a master’s from University of California in international relations and Latin America. She is fluent in Spanish and Portuguese.
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