10 Well-Rated Sustainable Funds

These four or five-star funds invest sustainably, and have the potential to outperform their peers

Ian Tam, CFA 19 April, 2021 | 1:20AM
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Tree with Roots

 

Though it feels like the pandemic is far from over, the silver lining is that it has made people more conscious. Conscious of world events, conscious of social injustices that exist in our backyards, and conscious of the environmental issues that we must address collectively. In the investment world, this means more attention to sustainable investments. Case in point, preliminary data from our Q1 2021 Sustainable Funds Landscape report indicates that retail assets invested in sustainable funds continue to grow exponentially.

What is ‘Investing Sustainably’?

Investing sustainably is a broad term. It encompasses a gamut of techniques used by fund managers. Morningstar identifies three ‘types’ of sustainable investments:

  1. ESG Funds – or those that focus on material risks arising from environmental, social, and governance factors in the portfolio by monitoring a company’s ability to manage these risks through corporate policies.
  2. Impact Funds – or those that seek to make a measurable difference in areas like the transition to a low carbon economy, gender/diversity, and social/community housing as examples.
  3. Environmental Sector Funds – or those that invest broadly in a green sector like solar, wind, or clean tech in general. 

Funds in Focus

Under Morningstar’s sustainable attributes framework, these three types of approaches (as identified through funds’ prospectus documents) are identified as sustainable investments. There are over 150 sustainable funds and ETFs available from Canadian domiciled fund manufacturers. To help narrow down a few choices, today we seek a short list of ideas by looking for funds with the following characteristics:

  • Are deemed a sustainable investment
  • Have received a Morningstar Star Rating (MSR) of four or five stars, indicating that the fund has historically been able to outperform peers in the same category on an after-fee risk-adjusted basis.
  • Have received a Morningstar Quantitative Rating (MQR) of Bronze, Silver or Gold. This rating is Morningstar’s assessment of a fund’s ability to outperform peers in the future, based on our assessment of the parent company, the people managing the fund, and the process used by the fund managers. 

The screen was run across the oldest share class of funds. The funds that met the above requirements are listed in the table below alongside their trailing performance, management expense ratios, inception dates, and ratings. Note that the Morningstar Sustainability Rating, also called the ‘Globe Rating’, (which is Morningstar’s assessment of the degree of ESG risk in the portfolio) is also shown in the table, however was not used in the screening process.

 

Name

Morningstar Category

MER (%)

MSR

MQR

Globe Rating

RBC Vision Canadian Equity Fund F

Canadian Equity

0.78

4

Gold

3 Globes

Leith Wheeler Carbon Con Cnd Eq F

Canadian Equity

1.03

4

Bronze

3 Globes

RBC Vision Bond Fund D

Canadian Fixed Income

0.60

4

Silver

Not Rated

North Growth Canadian Equity Series F

Canadian Small/Mid Cap Equity

0.70

5

Silver

4 Globes

RBC Vision Fossil Fuel Free Glb Eq F

Global Equity

0.99

5

Bronze

3 Globes

RBC Vision Global Equity Fund F

Global Equity

0.99

5

Silver

3 Globes

NEI Environmental Leaders Series F

Global Equity

1.44

4

Bronze

4 Globes

RBC Vision Balanced Fund F

Global Equity Balanced

0.95

4

Bronze

4 Globes

Desjardins SocieTerra Cleantech F

Global Small/Mid Cap Equity

1.45

5

Bronze

4 Globes

North Growth US Equity Advisor Ser F

US Equity

0.70

4

Gold

5 Globes

Source: Morningstar Direct, Performance Data as of March 31, 2021

 

This article does not constitute financial advice. It is always recommended to speak with an advisor or investment professional before purchasing any of the products listed here.

 

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About Author

Ian Tam, CFA  is Director of Investment Research at Morningstar Canada. 

 

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