Understanding Sustainable Mutual Funds

Sustainable investing has gained significant traction in recent years, as investors increasingly seek to align their portfolios with their values. Sustainable mutual funds focus on companies that prioritize environmental, social, and governance (ESG) criteria. In this article, we will explore three diverse examples of sustainable mutual funds and provide a performance comparison to help you make informed investment decisions.

Example 1: Vanguard FTSE Social Index Fund (VFTSX)

This fund offers a practical choice for investors looking to integrate sustainability into their portfolios. VFTSX seeks to track the performance of the FTSE4Good US Select Index, which includes companies with strong ESG practices.

The context here is that investors want a low-cost option that still adheres to sustainable principles. The fund is passively managed and boasts a low expense ratio compared to many actively managed funds, making it attractive for long-term investors.

As of September 2023, the Vanguard FTSE Social Index Fund has returned an average of 12% annually over the past five years, outpacing the S&P 500, which has averaged around 10% during the same period. This performance highlights the potential of sustainable investing without sacrificing returns.

Notes:

• The fund holds approximately 400 stocks, primarily in the technology, healthcare, and consumer discretionary sectors.
• Investors should be aware that while it focuses on sustainable companies, it does not guarantee social or environmental outcomes.

Example 2: TIAA-CREF Social Choice Equity Fund (TICRX)

The TIAA-CREF Social Choice Equity Fund is designed for investors who want to invest in a socially responsible manner while seeking capital appreciation. The fund incorporates ESG criteria into its investment process and diversifies across sectors.

This fund is ideal for those who are looking for an actively managed option with a focus on sustainable investments. The fund managers actively select stocks based on rigorous ESG criteria, which appeals to investors who prefer a hands-on approach.

As of September 2023, TICRX has delivered an annualized return of 11% over the last five years, closely aligning with the performance of the broader market. This demonstrates that sustainable funds can perform effectively while adhering to ethical standards.

Notes:

• The expense ratio for this fund is slightly higher due to its active management, around 0.62%.
• The fund has a broader sector allocation, including financials, technology, and consumer staples.

Example 3: BlackRock U.S. Sustainable Equity Fund (BISRX)

This mutual fund from BlackRock focuses on U.S. companies that are leaders in sustainability. The fund aims to provide long-term capital appreciation by investing in firms that exhibit strong ESG characteristics.

Investors who are committed to sustainability and also want exposure to large-cap U.S. equities will find this fund appealing. The investment strategy involves a blend of growth and value stocks, ensuring diversification within the sustainable investing framework.

As of September 2023, the BlackRock U.S. Sustainable Equity Fund has achieved a five-year annualized return of 13%, outperforming both the S&P 500 and the MSCI USA Index, showcasing the potential for sustainability-focused investments to thrive in competitive markets.

Notes:

• The fund has an expense ratio of 0.35%, which is competitive for actively managed funds.
• It primarily invests in sectors such as information technology, healthcare, and consumer discretionary, reflecting trends in sustainability and innovation.

Conclusion

These examples of sustainable mutual funds and their performance comparisons demonstrate that it is possible to invest with both purpose and profit. As the landscape of sustainable investing continues to evolve, investors can find a variety of options that align with their financial goals and ethical values.