Investing With Impact

What you should know about funds that aim to provide a “do-good” return

Many of today’s young adults want their investing to mean more than just a financial return. They want to support companies that align with their personal values, and those they feel good about on an ethical level. Sound familiar? You might want to consider “socially responsible investments,” or SRIs.

These are mutual funds and exchange-traded funds that aim to provide social value while achieving a competitive financial return. The funds buy shares in companies they have vetted, using criteria specific to their socially responsible mission. They have grown in popularity in recent years: According to the US SIF Foundation, an organization that tracks socially responsible investing, about 18% of U.S. assets, or $6.6 trillion, were invested in SRIs in 2014.¹

While socially responsible investments certainly can offer a feel-good payoff to their investors, they’re not all built the same.

Types of Socially Responsible Investments

SRI funds have a decades-long history. Traditionally, they invest in companies with business lines that avoided certain types of “vices” — such as tobacco, alcohol and gambling — or controversy — such as apartheid-era South Africa. Lately, however, the SRI universe has become more nuanced. For example, funds may build their portfolios around companies that have gained recognition for having an exemplary workplace culture, commit to environmental sustainability or uphold certain religious values.

Performance Trends

Values aside, several studies have shown that SRI portfolios can hold up well when compared to the broader stock market’s performance. A 2005 study by a finance professor at Santa Clara University found that two SRI indexes slightly outperformed the S&P 500 index in the 10-year period between January 1995 and April 2004. However, the study notes that the SRI indexes tended to outperform during the economic boom in the late 1990s but lagged during the bust of the early 2000s.2 That said, SRI funds have their own investment strategies and a diverse range of holdings, so performances among SRI funds vary greatly.

Choosing Wisely

With hundreds of mutual funds and ETFs devoted to SRI investing, how do you find the one that’s right for you?

One place to start is with a fund screener, such as the Premium Fund Screener on Morningstar.com, which classifies the sector as “socially conscious funds.” Morningstar recently listed 486 such mutual funds (and another dozen or so ETFs) in its data bank. The fund screener can sort funds and score them on a wide range of personal preferences, such as expense ratios, past performance, earnings growth rate, risk, yield, manager tenure, concentration of assets or the geographic emphasis of its portfolio. Select any fund and you can see many of the specific stocks it holds to determine if they are aligned with your values.

A Regions Wealth Advisor can connect you with a Portfolio Manager at Regions who can help you determine how socially responsible investing fits into your overall financial plan and help you select funds that reflect your personal values.