A SPECIAL REPORT FROM FUNDATA
Now in its fourth year, the Fundata FundGrade™ A+ Award is quickly becoming the gold-standard measure of Canadian mutual fund excellence. The A+ Award represents the culmination of years of achievement and high level performance for the winning funds. The 2015 A+ Awards will be announced on Jan. 21, 2016. And funds with a socially-responsible mandate are no exception. Here’s a look at three socially-responsible funds that are contenders for the 2015 Fundata A+ Award.
The Fundata FundGrade is a measure of relative risk-adjusted performance for Canadian mutual funds. Funds with at least two years of history are assigned grades from A to E based on a combination of their Sharpe, Information, and Sortino Ratios in relation to their peers within their respective Canadian Investment Funds Standards Committee (CIFSC) categories.
To recognize exceptional funds with a socially responsible mandate, an A+ Award is given to the top fund with a socially responsible mandate within each of three fund classes: equity, balanced, and fixed income. The universe of eligible SRI funds is determined by the list of funds identified as Canadian responsible investment funds by the Responsible Investment Association (RIA).
While there are some familiar names in the running, the current leaders are new for 2015. The universe of SRI funds in each of the three classes is presented in the accompanying graph, with the prospective A+ funds highlighted. Let’s take a look at the potential winners.
Category: SRI Equity
The RBC Jantzi Global Equity Fund is the current leader in the SRI Equity category. With a four-year average annual compounded return of 17% this fund delivers a return that is significantly higher than almost every other fund in its class. According to portfolio manager RBC Global Asset Management, returns this year are driven by beneficial investments in health care and financials. This return does not come without risk, however, as reflected in the fund’s four year volatility ranking, which at 9.4% places it in the upper range of SRI Equity funds.
The fund has retained global responsible investment research firm Sustainalytics to assist with the fund’s SRI mandate. The fund benefits from stock selection using the Sustainalytics proprietary methodology, which compares companies based on best-practices within their respective industries. In addition, Sustainalytics completes a semi-annual review of the fund’s portfolio using environmental, social and governance (ESG) criteria developed for the Jantzi Social Index. As of June 30, three companies were removed from the fund’s portfolio for failing the most recent ESG review.
Category: SRI Balanced
In the SRI Balanced category, another new face leads the pack in risk-adjusted performance: the IA Clarington Inhance Growth SRI Portfolio. Set in the Canadian Equity Balanced category, this fund of funds invests primarily in other IA Clarington Inhance funds with an SRI mandate. Portfolio sub-advisor Vancity Investment Management of Vancouver, BC, handles the ESG screening for the fund. Most recently, Vancity has taken steps in the underlying portfolios to reduce exposure to, and in some cases completely divest, investments in the oil-and-gas industry, including companies with significant operations in the oil sands. Growing financial and regulatory pressure, in addition to existing concerns about the impact on the global climate and environment, are cited as the main reasons.
The fund invests with a bias towards Canadian equity (36% according to recent semi-annual data). The fund, however, has managed to perform well despite weakness in the Canadian economy throughout the year, principally due to the performance of the underlying IA Clarington Inhance Global Equity SRI Class. Manager Industrial Alliance Investment Management notes that the fund “…had by far the highest individual fund return, reflecting strong gains in global stock markets, augmented by…being currency unhedged, and so fully capturing the return from the depreciation of the Canadian dollar.”
Category: SRI Fixed Income
The number of funds with an SRI mandate and a focus on fixed-income investment is low enough that a casual observer might think SRI Fixed Income is a specialty investment class. Of course, just as fixed income plays an integral part in most well-rounded portfolios, so too SRI Fixed Income plays an important role in the portfolio of the socially conscious investor. The lack of competition only serves to make the potential winner in this category all the more apparent. The Phillips, Hager & North Community Values Bond Fund is a clear standout in 2015. The fund, which boasts a yield to maturity of 2.4% and an S&P equivalent credit rating of AA- based on recent data, invests primarily in Canadian government entities and corporations that operate in an ethical and responsible manner.
The fund has a four-year average annual compounded return of 3.7% to match its 3.7% volatility. It is modeled after the PH&N core fixed income fund with a secondary process where, according to PH&N, the environmental and social records of component issuers are formally screened before inclusion in the portfolio.
John Krisko is Analyst, Analytics & Data, at Fundata Canada Inc., a leading source for investment fund information. This article first appeared in the Fall 2015 issue of Your Guide to Responsible Investing, published by Brights Roberts Inc.
Notes and Disclaimers
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Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Investment funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.