The 5 Largest Socially Responsible Funds in the US

1
Parnassus Core Equity

Over the past 5-10 years, value first Sustainable Investing has taken the US by storm.  

Al Gore and David Blood's Generation Investment Management have shown the way, outperforming benchmarks over the past 10 years during a time when most active managers under performed their chosen benchmarks.  Though based in London, they have garnered many billions of dollars of assets and closed their core equity fund some time ago to new investors.  At any rate, Generation requires a minimum investment in the millions of dollars and doesn't offer a public facing mutual fund.

Also benefiting from this trend is Parnassus Core Equity (PRBLX) which over the last 8 years or so has become the largest public facing US mutual fund by far now managing over $12 billion in that one fund alone.  Parnassus as a firm managed less than $1 Billion back in 2007.

A 5 Star Morningstar fund, the fund has been an average +10% over the past 10 years, and Parnassus's funds in general are the top financial performers among US-based socially responsible investors during this period across the board, also including their Endeavor Fund (focuses on the best companies to work for) as well as their Mid Cap fund and the Parnassus Fund.

Parnassus Core Equity had a tough December, but remains well positioned as a value seeking investor accessible to all investors, at a time where markets may well reward value generating companies who focus on sustainability solutions, as opposed to values first approaches that the field still primarily focuses on.

This is over 5 times larger than any other public facing US fund with a main focus on sustainability and there's a reason for that.

Long standing Recommendation:  Buy

2
TIAA-CREF Social Choice Equity

One of the other long time large Socially Responsible funds is the TIAA-CREF Social Choice Equity Fund (TICRX).

Managing $2.7 Billion in public facing equity, the fund's holdings have also been long behind more than 10 times that amount in private accounts, at this point just over $14 Billion is managed alongside this tranche of holdings, so this would be the largest single managed portfolio to SRI criteria if you include non-publicly available assets under management.

Sadly, though, this has been the very lightest of green funds that one might imagine.  As per the book sponspored by TIAA-CREF and written by former principal Scott Budde and entitled Compelling Returns, the fund has long tried to hug benchmarks and keep fees low, and as a result, the fund has long looked just like the market, meaning as sustainability becomes more material, this fund's owners will not benefit.  

Also, the least expensive ESG data was long used by the fund, which used to be the old KLD data now part of MSCI which is based on trailing SEC violations and other forms of negative screening, rather than taking a forward looking value seeking approach.  One could argue this has been a socially responsible fund in name only.

In fact, last year, the fund was -2.7% in a year where its chosen benchmark, the Russell 3000 was +0.48%.  Over the last ten years, as Generation and Parnassus outperformed their benchmarks, TIAA-CREF Social Choice has been +6.85% while it benchmark was +7.59%, and since inception +4.60% versus +5.04%.  In fairness, TIAA-CREF does better work in other asset classes such as green real estate and impact investing.

Funds like this help continue to perpetuate the myth that socially responsible investing leads to under performance and it is hoped tat they some time seek to evolve this fund and its methodology to match the sustainability imperative that has emerged.

Long standing Recommendation:  Avoid.

3
Neuberger Berman Socially Responsive

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Neuberger Berman Socially Responsive (NBSRX) is the third largest fund in the US seeking to invest in a socially responsible manner, but much like TIAA-CREF, has not enjoyed performance success, seeing average returns over the past 5 and 10 years per Morningstar gaining the fund 3 stars, and otherwise under performing its benchmarks during this period.

One glaring question would be why the largest sector of this fund is financial services at a time when movies such as The Big Short question whether the banks are bigger than "Too Big to Fail."  At minimum its hard to see how a socially responsible fund can have this sector as the largest component of its investments, but again this harkens back to Paul Hawken's 2004 criticism of the field as looking to much like business as usual to truly make a difference.

The methodology of this fund has never been that clear and top 4 holdings such as Progressive Corp, Texas Instruments, Newell Rubbermaid and American Express don't jump out as sustainability leaders.

Recommendation:  Avoid

4
Calvert Equity

One of the longest players in the socially responsible investing space, Calvert has gone through significant personnel changes of late, losing many of its long standing players, as well as experiencing layoffs, typically not a good sign for any business.

Calvert has also slipped in assets under management at a time when interest in the field is at a record high.

That said, Calvert has publicly redone some of its methodologies, and its largest fund Calvert Equity Portfolio (CSIEX) was +3.68% in total return in 2015 in a year where markets were largely flat, not a bad financial result. The fund has also outperformed the S&P 500 longer term. It will be interesting to see what direction Calvert takes in future as new management tries to steer the big old ship.

Recommendation:  Watch

5
Pax World Balanced

One of the original SRI funds, Pax World Balanced used to be the largest, now 5th largest with $1.8 Billion in assets.  The fund had some controversy itself with the SEC back before Joe Keefe took the helm.

Perhaps oddly the fund has quite a bit of traditional energy investments among its fixed income holdings including as of September 2015 the largest of which is $4.4 Million in a ONEOK bond.  With Oklahoma earthquakes a growing concern due to wastewater reinjection from such gas exploration and development, is this is a socially responsible investment?

This is the largest balanced fund available to the public with a socially responsible approach, meaning a mix of equity and fixed income, and the fund is +4.75% over the past 10 years.

Recommendation:  Be Careful

Conclusion:  With some of the largest 5 socially responsible funds in the US under performing benchmarks, market perception of sustainability as a driver of value is understandably mixed as well.

Socially responsible fund managers do important work on shareholder engagement and advocacy with companies but portfolio construction and applied expertise lags trends in the market such as innovation and on the sharing economy.  Make sure your investment partners are also reflecting the trends playing out in the business world.  The older firms in the space have a ways to go to demonstrate they are keeping up with the times in this regard.

Socially Responsible Investing strategies that remain stuck on negative portfolio construction may not meet market performance, arguably due to a lack of expertise.

Conversely, we find the combination of ESG & expertise to have both outperformed as well as remaining a compelling option for investors interested in sustainability issues while wanting to stay in synch with the direction of market trends going forward.