US mutual funds that invest in companies they view as socially responsible are posting better returns, spurring advisers to pitch them to their clients.

Managers for these funds, known sometimes as “sustainable, responsible impact” or “environment, social and governance” funds, focus on companies that promote values like diversity, and avoid companies and industries that they see as morally problematic, such as tobacco.

Investors have been pouring money into socially responsible funds, including Vanguard FTSE Social Index Fund Investor Shares and iShares MSCI KLD 400 Social ETF.

US socially responsible funds held $6.57 trillion at the start of 2014, officials said late last year at a sustainable investment conference, up from $3.74 trillion at the start of 2012. ]

The funds made up roughly 18 percent of all managed assets at the start of last year, up from 12 percent two years earlier, they said. There are currently 412 US socially responsible funds up from 375 in 2009, according to Morningstar.

Advisers say the funds are performing better because more financial institutions offer socially responsible index funds now, which have lower management costs and therefore often offer better returns than their actively managed counterparts, said Kenneth Klabunde, an Indianapolis-based adviser and founding principal of Precedent Asset Management.

Long-term returns for some indexes tracking sustainable, responsible US companies, such as the Calvert Social Index, were on par with the S&P 500 and other broad market indexes, according to a 2014 TIAA-CREF study.

For example, the Calvert Social Index Fund, which tracks that index and holds stocks including Apple, Inc. and Microsoft Corp showed a return of 13.75 percent for 2014, versus 13.69 percent for the S&P 500 for the same time period, according to Morningstar.

There may be other advantages to investing in socially responsible funds. Clients who believe in the values of the companies they invest in may be less likely to sell when the market tanks because “they feel more connected to their strategy,” said Dan Kern, president of Advisor Partners in Lafayette, California.


As with conventional mutual funds, there are good and bad options for socially responsible investing, said David Kathman, a senior analyst at Morningstar.

Keeping costs as low as possible is critical, Kern said. Kern is able to use low-cost SRI index funds with management fees ranging from .25 to .45 percent. Fees for actively managed SRI funds are usually north of 1 percent, he added.

Kern helps advisers customize socially responsible portfolios for clients using mock portfolios to show how omitting fossil fuel stocks and other sectors can affect performance versus a traditional, unrestricted portfolio.

Clients who embrace socially-responsible investing typically put 30 percent to 80 percent of their assets in such funds, advisers said.

Source: Times of India