Nine of the biggest ESG mutual funds in the U.S. outperformed the Standard & Poor’s 500 Index last year, and seven of them beat their market benchmarks over the past five years.
The $878 million Ave Maria Growth Fund was the top performer in 2019, followed by the $3.8 billion Calvert Equity Fund and the $4.9 billion Putnam Sustainable Leaders Fund. All three funds posted gains of more than 35%, compared with the S&P 500’s 31.5% with reinvested dividends. Morgan Stanley’s $3.9 billion Global Opportunity Portfolio and the $2.1 billion Brown Advisory Sustainable Growth Fund placed atop the rankings in the five-year period.
“The number one question I used to get from investors is aren’t you limiting your options and sacrificing returns by doing ESG?” said Karina Funk, a one-time civil and environmental engineer who runs the Brown Advisory fund. “I don’t get that question anymore.”
Bloomberg’s fourth-annual ranking of the largest environmental, social and governance funds with five-year track records, shows sustainable investing isn’t just for do-gooders. It’s a money-making opportunity that’s gaining popularity. Assets managed by the 75 retail funds in the survey climbed more than 34% to $101 billion last year as socially conscious money managers bet sustainable investing will help them find new growth opportunities.
“It turns out companies that generate strong business results by helping their customers with energy efficiency, solve some of our biggest sustainability challenges, and companies that are productivity leaders by reducing their resource consumption are performing well,” Funk said.
Morgan Stanley’s Global Opportunity Fund, led by Hong-based portfolio manager Kristian Heugh, focuses on finding companies that use strong management to minimize negative impacts to the environment and society over time; it also incorporates sustainability analysis into every portfolio position. The Morgan Stanley fund’s biggest holdings, as of Sept. 30, were Mastercard Inc. and Amazon.com Inc. It also had a sizable investment in Chinese after-school tutoring company TAL Education Inc., which has climbed amid strong revenue projections in spite of accounting concerns raised by short sellers in 2018.
The top-performing funds also bet heavily on technology and finance services companies, which have historically been low-emission sectors. Tech companies, including Microsoft Corp., Apple Inc. and Alphabet Inc., were staples of many of the top-performing ESG funds, as were credit-card companies Visa Inc. and Mastercard. Health-care companies Danaher Corp. and Thermo Fisher Scientific Inc. were other standouts, even though healthcare was one of the worst performing sectors in the Russell 1000 Growth Index during much of last year.