Are you hoping to invest? Mutual funds are simultaneously the least expensive and most low-risk way to get started with investing. By pooling funds from numerous different investors into a diverse portfolio of securities that can include stocks, bonds, equities, and short-term debt, this investment vehicle has multiple strong advantages that rightfully makes it highly appealing to new investors.
You would be right to consider buying shares in a mutual fund, especially socially responsible mutual funds if you are not a financial professional and would prefer to rely on the skills and experience of a fund manager, who does all the painstaking work of researching the securities the fund invests in, tracking the fund’s performance, and ensuring that the mutual fund is appropriately diversified.
With portfolios frequently containing at least 100 different securities — thereby protecting your capital gains and reducing your risk of losses.
Mutual funds are, as a category, open even to small investors, with some allowing you to get started by investing only a few hundred dollars, and many making shares available for as little as $2,500.
In addition, by investing in a mutual fund, you gain flexibility, as these assets are highly liquid and investors are able to redeem their shares whenever they need to.
Traditionally, mutual funds were chosen solely for these compelling financial reasons.
In the current social and political climate, however, modern investors — and especially Millennials — are no longer satisfied with investment strategies that merely maximize their financial returns while minimizing the level of risk they take on.
Modern investors want more. As they invest, they want to know that they back only companies that share their values, in turn leaving a positive mark on the world by contributing to social change, environmental change, and the creation of a transparent and accountable corporate culture.
Are you interested in values-based investment, but would you also like to reap the benefits that are associated with investing in a mutual fund?
The practice of socially responsible (or “SRI”) investing has become increasingly popular in recent times, and today you can choose to invest in a wide variety of socially responsible mutual funds. Here’s what you need to know.
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What Are Socially Responsible Investments?
Values-based investors place an emphasis on investing for dual gains — like those who came before them, they want to maximize their returns, of course, but in the process, they also prioritize backing companies that share their vision for a sustainable future. Socially responsible investors actively look companies that accentuate excellent corporate social responsibility.
Socially responsible investments typically exclude investment categories that are seen as problematic by default. These would include investments in the tobacco and alcohol industries, investments related to gambling, investments in nuclear power companies, and increasingly also investments related to fossil fuels.
Within chosen industries, multiple factors are analyzed to determine whether companies meet ethical standards before investment decisions are made. A company’s corporate citizenship is typically analyzed through the lens of ESG values — economic, social, and governance principles:
- Environmental factors that would be analyzed when deciding how to invest in a socially responsible manner include a company’s approach to climate change mitigation, waste and water management, deforestation, energy usage, and investment in renewable and clean energy sources.
- Social factors which socially responsible investors take into account would include the company’s approach to its own workforce as well as the wider community. They would include ethical labor practices, diversity in the workforce, product liability issues, and the way in which the company’s activities impact the communities from which they source materials, for instance.
- Governance factors pertain to corporate governance and transparency.
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How Do Socially Responsible Mutual Funds Work?
The best socially responsible mutual funds place an equal emphasis on capital gains and ESG values.
These mutual funds have portfolios made up entirely of securities that meet their high demands, while retaining the diversification that makes mutual funds so advantageous.
This means that fund managers will carry out a meticulous ESG screening process before investing in stocks and other securities, and continue to monitor ESG disclosures just like financial returns are tracked.
In addition, many socially responsible mutual funds take an active part in shareholder activism by attending shareholder meetings and exercising voting rights, in order to further affect social and environmental change by encouraging companies to uphold even higher corporate citizenship standards.
Not all socially responsible mutual funds have the same focus, as ESG investors can have radically different priorities.
Some mutual funds that would fall under the “socially responsible” heading are primarily sustainable mutual funds that emphasize corporate environmental awareness, for instance, while others prioritize ethical labor practices or transparency in corporate governance.
The minimum investment, expense ratio, and volatility of socially responsible mutual funds should also be considered as you decide where to invest, and it is crucial to decide what level of risk you are comfortable with before investing.
To find out what socially responsible mutual funds to invest in, the Forum for Sustainable and Responsible Investment maintains a very helpful and up-to-date list of sustainable and socially responsible mutual funds and EFTs, which currently contain 180 different mutual funds.
Here, however, is a closer look at some of the best socially responsible mutual funds to invest in.
1. iShares Global Clean Energy ETF (ICLN)
The iShares Global Clean Energy ETF is a fund that tracks the investment results of the S&P Global Clean Energy Index, a set of companies within the clean and renewable energy sector. Its portfolio includes companies within the wind, solar, and hydroelectricity generating fields, as well as those producing related equipment.
The diverse securities within this fund offer exposure to companies from across the globe. The top holdings include companies such as Verbund AG, Siemens Gamesa Renewable Energy SA, and Plug Power Inc.
As of August 2021, the iShares Global Clean Energy ETF:
- Has a Net Asset Value (NAV) of $23.08.
- Has an expense ratio of 0.42 percent.
Although the fund saw returns above 120 percent in 2020, socially responsible investors should consider that this fund is more volatile in nature than many others as they make investment decisions.
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2. 1919 Socially Responsive Balanced Fund (SSIAX)
The 1919 funds, which have an extremely good reputation, seek to offer a strong combination of high returns and valued-based investing, and the 1919 Socially Responsive Balanced Fund invests primarily in the stocks of companies based in the United States that have been prove to have a deep commitment to ESG values.
This balanced fund focuses on employee wellbeing, human rights, and a socially responsible corporate culture. Apple, Microsoft, and Amazon are all among its top holdings.
As of August 2021, the 1919 Socially Responsive Balanced Fund:
- Boasts an NAV of $27.41.
- Has an expense ratio of 1.160 percent.
Although this expense ratio is steep, the 1919 Socially Responsive Balanced Fund has been among the best performing socially responsible mutual funds.
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3. Vanguard FTSE Social Index Fund (VFTAX)
This fund tracks the FTSE4Good US Select Index, and avoids investing in companies with problematic values, such as those in the fossil fuel and nuclear power industry, arms companies, and tobacco, alcohol, and gambling sectors. It further excludes companies that have been shown to have dubious labor practices.
As such, the prime focus is on excluding companies that do not meet the fund’s standards, rather than actively embracing those with excellent corporate social responsibility. Its top holdings include Apple, Amazon, and Microsoft.
This mutual fund is known for its low expenses, making it one of the best socially responsible mutual funds to consider for new investors — your minimum input is $3,000.
As of August 2021, the VFTAX has an NAV of $43.40 and an expense ratio of 0.140 percent.
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4. SDRP S&P 500 Fossil Fuel Reserve (SPYX)
The SDRP S&P 500 Fossil Fuel Reserve seeks to track the S&P® 500 Fossil Fuel Free Index, and exists to allow socially responsible investors who are primarily concerned with environmental change to make investment choices in line with their values.
Companies that own fossil fuel reserves are excluded, while fossil-fuel-free investments are included in the fund’s portfolio.
The fund has an NAV of $110.00 as of August 2021, with an expense ratio of only 0.20 percent. Microsoft, Apple, Alphabet Inc, Tesla Inc, and NVIDIA Corporation are all among its top holdings.
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5. Parnassus Core Equity Investor (PRBLX)
The Parnassus Core Equity Investor Fund does have a fairly high expense ratio, at 0.87 percent, but it is also an actively managed fund and it can be counted among the top performing socially responsible mutual funds, both in the short and long term.
This fund carries out ESG performance evaluations before investing, and excludes “vice” companies and those within the fossil fuel and nuclear energy sectors. As of August 2021, the PRBLX has an NAV of $64.09, and its top holdings include Comcast Corp Class A, Applied Materials Inc, and Microsoft.
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6. TIAA-CREF Social Choice Bond Fund (TSBIX)
The TIAA-CREF Social Choice Bond Fund is an actively managed core bond fund that evaluates all core ESG principles in making investment decisions.
This fund attempts to make an impact on the affordable housing market in the United States as well as investing in bonds that further the social and economic development of marginalized communities, making it one of the best socially responsible funds to invest in for those who seek to contribute primarily to social change.
As of august 2021, the TSBIX has an NAV of $10.68 and an expense ratio of 0.350 percent.
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7. Shelton Green Alpha Fund (NEXTX)
The Shelton Green Alpha Fund, with a minimum investment of $1,000, is a very viable option for brand new socially responsible investors who are just dipping their toes in.
It relies on a proprietary algorithm to perform its screening, with the aim of investing only in securities that contribute to green economic growth in a way that also promotes the wellbeing of communities. The top holdings include Tesla, Moderna, Vestas Wind Systems A/S, and JinkoSolar Holding Co Ltd.
While this fund has a high fee level as well as being volatile, the Shelton Green Alpha Fund remains one of the best performing socially responsible mutual funds. As of August 2021, it has an NAV of $49.26 and an expense ratio of 1.280 percent.
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8. AllianceBernstein Sustainable Global Thematic Fund (ATEYX)
The AllianceBernstein Sustainable Global Thematic Fund is an actively managed sustainable mutual fund with a portfolio of stocks from US and global companies whose missions are consistent with the UN Sustainable Development Goals.
That means that in addition to environmental sustainability and climate change mitigation, the companies the ATEYX invests in focus on health and social equity. The AllianceBernstein Sustainable Global Thematic Fund invests in both new and established companies and its top holdings include Royal Philips NV, Infineon Technologies AG, and the SVB Financial Group.
There is no minimum investment, as of August 2021 the fund has a Net Asset Value of $198.44, and the expense ratio is 0.97 percent.
The mutual funds highlighted here are far from the only socially responsible mutual funds open to investors today. As you decide where to invest, you will have to consider your own priorities.
Some investors will have a burning desire to fight social injustice through the investment choices they make, for instance, while others will want to make investments that reflect their religious beliefs.
For many, creating a cleaner and greener world is a top priority — and some investors, of course, choose socially responsible mutual funds simply because they recognize that as fossil fuels take a back seat, greener investments are going to be less financially risky in the long term.
No matter what type of investor you are, mutual funds that share your values can be an excellent place to allow your money to work for you, while it also helps create the world you are hoping to live in.
As you decide how to invest, however, remember that the “best socially responsible mutual funds” should be measured not only on their commitment to ESG values but also on the basis of their financial success.