Chances are, if you want to buy “socially responsible investing” (SRI) funds, your first priority is values (but not the monetary kind) and the second priority is performance. But do investors need to sacrifice performance to invest in a way that aligns with their values? There was a time when this was generally true, but the idea that socially responsible investing will limit your returns is beginning to change.
Being socially responsible and achieving above-average returns on a consistent basis can be a challenge. For example, if a fund’s socially conscious objective is to eliminate entire sectors, such as energy or defense, and those sectors are leading the market, the fund manager will need to compensate with superior security selection in other areas.
But today’s selection of SRI funds, which is more than 300 in number, offers socially conscious investors a broad variety of value screens and objectives to meet their own preferences. Some funds may invest generally in companies that are good corporate citizens or they may have specific religious value screens to pass.
Here are three of the best SRI funds available to buy today.
Best SRI Funds: Parnassus Endeavor Fund (PARWX)
The Parnassus Endeavor Fund (PARWX), formerly known as Parnassus Workplace Fund, is a large-cap core equity fund that seeks to invest in companies with outstanding workplaces. According to Parnassus: “Companies with good workplaces usually are able to recruit and retain better employees, and perform at a higher level than competitors in terms of innovation, productivity, customer loyalty and profitability.”
The fund also considers certain environmental and social factors in in its security selection process. Top holdings include Applied Materials Inc (AMAT), International Business Machines Corp (IBM), and Gilead Sciences Inc (GILD).
Judging by performance, Parnassus may be right about the connection between outstanding workplace environments and outstanding returns. The Endeavor Fund returns beat the S&P 500 Index in the 1-year, 3-year and 5-year returns and rankings in its large-growth category place it ahead of at least 80% of category peers in each of those time frames.
The reasonable expense ratio of 1.07% — or $107 per $10,000 invested — will help support future performance. You can buy PARWX with a minimum initial investment of just $2,000.
Best SRI Funds: Pax World Small Cap Individual Inv (PXSCX)
Pax World Investments prides itself on being a leader in sustainable investing and in “fully integrating environmental, social and governance (ESG) factors into investment analysis and decision making.”
Reflecting their philosophies are top holdings Hologic Inc (HOLX), a manufacturer of medical devices for women, Ultra Petroleum Corp (UPL), a producer of oil and natural gas, and Compuware Corp (CPWR), which delivers tech services and software to enable peak performance for customers.
The 1-year, 3-year and 5-year performance for Pax World Small Cap places it in the top third of its small blend category of mutual funds in each of those time periods. The minimum initial purchase for PXSCX is a mere $1,000, with a net expense ratio of 1.24%.
Best SRI Funds: TIAA-CREF Social Choice Eq Retail (TICRX)
If you are looking for a socially responsible mutual fund that can make for a solid large-cap core holding, TIAA-CREF Social Choice Eq Retail (TICRX) is a good choice.
The fund’s benchmark is the Russell 3000 Index, and it seeks to achieve favorable long-term total returns that reflect the overall performance of the stock market. The investment philosophy, according to TIAA-CREF, is invest in “companies that are strong stewards of the environment; devoted to serving local communities; committed to higher labor standards; dedicated to producing high-quality and safe products; and those managed in an exemplary or ethical manner.”
Top holdings include Johnson and Johnson (JNJ) and Berkshire Hathaway (BRK.B).
The fund’s inception is 2006 and it has consistently turned in average to above-average performance since then. The minimum initial investment for TICRX is $2,500, and expenses run only 0.48%.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.
