Socially responsible investment is much in vogue now, given the influx of millennials seeking to incorporate sustainable investment and value in their portfolio. In fact, 86% of young investors are interested in responsible investing, according to a 2017 Morgan Stanley report.
Awareness about social issues has grown of late, with investors becoming increasingly particular about matters like eradication of poverty, clean energy, climate change and global warming.
In addition, the Morgan Stanley report cites that generation X and millennials are set to inherit about $30 trillion from baby boomers over the next couple of decades. Given that millennials are more inclined toward investing in companies that target environmental and social welfare, investments in these areas could rise.
In general, environmental, social and governance (ESG) are factors that are considered while making investment-related decisions. It is interesting to note that companies that possess better ESG standards have performed financially better and have outperformed their benchmarks, per research by Axioma.
According to the research, in the four-year period till March 2018, most portfolios weighted in favor of companies with better ESG scores outperformed their benchmarks by 81-243 basis points, per Financial Times reports. A previous research by Boston Consulting Group research also found similar results. The report cited that companies with higher ESG standards were more lucrative than their counterparts.
Therefore, considering the aforementioned factors, putting money into mutual funds that give special consideration to ESG scores would be prudent.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have selected a couple of mutual funds for your portfolio that largely consider ESG factors when investing. These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.
We expect these funds to outperform peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.
TIAA-CREF Social Choice Equity Retirement (TRSCX - Free Report) seeks to invest majority of its assets in companies that meet its ESG guidelines. The fund aims for long-term total return that echoes the investment performance of the general American stock market. The fund’s advisor tries to generate the U.S. stock market’s return by investing in businesses that have their activities aligned with TRSCX’s ESG criteria.
This Sector – Large Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
TRSCXhas an annual expense ratio of 0.42%, which is below the category average of 0.95%. The fund has three and five-year return of 15.2% and 9.1%, respectively.It has no minimum initial investment.
New Alternatives A (NALFX - Free Report) invests in companies that contribute to a sustainable environment. The fund seeks long-term capital growth with income as its secondary objective. The fund primarily invests in common stocks of companies and may also invest in other equity securities such as real estate investment trusts and American Depository Receipts etc.
This Sector – Other product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
NALFXhas an annual expense ratio of 1.12%, which is below the category average of 1.33%. The fund has three and five-year return of 11.6% and 4.9%, respectively.It has a minimum initial investment of $2500.
TIAA-CREF Social Choice Bond Retail (TSBRX - Free Report) invests a minimum of 80% of its net assets in bonds while favoring long-term total return through income and capital growth. The fund gives special consideration to companies that satisfy its ESG criteria. TSBRX invests in a wide range of investment-grade bonds and fixed-income securities which may include corporate bonds, U.S. government securities and taxable municipal securities, among other instruments.
This Sector – Inv Grade Bond-Intermediate product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
TSBRXhas an annual expense ratio of 0.65%, lower than the category average of 0.76%. The fund has three and five-year return of 2.1% and 2.9%, respectively.It has a minimum initial investment of $2500.
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