By Mathieu Benhamou, Emily Chasan and Saijel Kishan
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 environmentalengineer whoruns the Brown Advisoryfund. “I don’t get that question anymore.”
Funds sized by assets:
$100M
$1B
$5B
Total return for S&P 500
1-year
total return
Total
return
40%
Ave Maria Growth AVEGX
Calvert Equity CSIEX
Putnam* PNOPX
35
Brown Advisory BIAWX
Morgan Stanley MIOPX
Morgan Stanley MGGPX
Iman IMANX
AllianzGI PGWAX
Amana Growth AMAGX
30
Morgan Stanley MFAPX
3-year
total return
25%
MGGPX
MIOPX
CSIEX
BIAWX
MFAPX
20
AMAGX
PNOPX
AVEGX
PGWAX
IMANX
15
5-year
total return
20%
MGGPX
BIAWX
15
MFAPX
MIOPX
CSIEX
AMAGX
AVEGX
IMANX
PNOPX
PGWAX
10
Funds sized by assets:
$100M
$1B
$5B
Total return for S&P 500
1-year
total return
3-year
total return
5-year
total return
Total
return
40%
Ave Maria Growth AVEGX
Calvert Equity CSIEX
Putnam* PNOPX
35
Brown Advisory BIAWX
Morgan Stanley MIOPX
Iman IMANX
Morgan Stanley MGGPX
AllianzGI PGWAX
Amana Growth AMAGX
30
Morgan Stanley MFAPX
25
MGGPX
MIOPX
CSIEX
BIAWX
MFAPX
20
AMAGX
PNOPX
AVEGX
PGWAX
MGGPX
IMANX
BIAWX
15
MFAPX
MIOPX
CSIEX
AMAGX
AVEGX
IMANX
PNOPX
PGWAX
10
Funds sized by assets:
$100M
$1B
$5B
Total return for S&P 500
Total return
10%
15%
20%
25%
30%
35%
40%
Brown
Advisory
BIAWX
Amana
Growth
AMAGX
Iman
IMANX
Putnam
Sustainable
Leaders*
PNOPX
Ave Maria
Growth
AVEGX
1-year
total return
AllianzGI
Focused
Growth
PGWAX
Morgan
Stanley
Global
Opportunity
MGGPX
Calvert
Equity
CSIEX
MFAPX
CSIEX
AVEGX
Morgan Stanley
Int’l Opportunity
MIOPX
PNOPX
3-year
total return
IMANX
MGGPX
PGWAX
BIAWX
AMAGX
MIOPX
AVEGX
BIAWX
PNOPX
MFAPX
5-year
total return
PGWAX
MGGPX
MIOPX
IMANX
CSIEX
AMAGX
Funds sized by assets:
$100M
$1B
$5B
Total return for S&P 500
Total return
10%
15%
20%
25%
30%
35%
40%
Iman
IMANX
Morgan Stanley
Int’l Advantage
MFAPX
Amana
Growth
AMAGX
Brown
Advisory
BIAWX
Putnam
Sustainable
Leaders*
PNOPX
1-year
total return
Ave Maria
Growth
AVEGX
AllianzGI
Focused
Growth
PGWAX
Morgan
Stanley
Global
Opportunity
MGGPX
Calvert
Equity
CSIEX
AVEGX
MFAPX
IMANX
PNOPX
CSIEX
Morgan
Stanley
Int’l Opportunity
MIOPX
3-year
total return
MGGPX
PGWAX
BIAWX
AMAGX
MIOPX
PNOPX
BIAWX
PGWAX
AVEGX
MFAPX
5-year
total return
MGGPX
IMANX
CSIEX
MIOPX
AMAGX
Read more: see our 2017 and 2018 rankings.
Bloomberg’s fourth-annual ranking of the largest environmental, social and governance funds with five-year track records, showssustainable investing isn’t just for do-gooders. It’s a money-making opportunity that’s gaining popularity. Assets managed by the 75 retailfunds in the surveyclimbedmore than 34% to $101 billion last year as socially conscious moneymanagers 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 Kong-based portfolio manager Kristian Heugh, focuses on finding companies that use strong management to minimize negative impacts to the environment and societyover 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.
Brown Advisory’s Sustainable Growth Fund has a big position in Danaher, which was rewarded by the market last year for tax benefits associated with its acquisition of General Electric Co.’s bio-pharmaceutical business. Danaher also has a division that focuses on water safety and purification that makes it attractive from an ESG perspective, Funk said. She said she bet on Thermo Fisher because its pollution analysis and food-safety testing equipment are solving sustainability problems, and she likes semiconductor companies focused on energy efficiency, including Monolithic Power Systems and Marvel Technologies, as well as sustainable-packaging plays such as aluminum-maker Ball Corp.
“Clean water is one of the opportunities we see going forward,” said Joe Hudepohl, aformer U.S. Olympic swimmer whomanages the Calvert Equity Fund, explaining how the fund also came to bet on Danaher last year.
Additionally, Calvertinvested in credit-card companies because they can reduce inequality by promoting access to financing for people around the world. Looking to 2020, Hudepohl said he’s weighing what stocks he might buy if there’s a market correction.
“We’ve had two pretty good years of performance, but I believe we’re in the late innings of an economic expansion,” Hudepohl said. “Quality tends to do well late cycle and into a downturn, so we think we’re pretty well positioned to protect in a down market.”
ESG managers outperformwhen they focus not just on “box-checking,” but finding long-term competitive advantages, said Katherine Collins, who co-runs the Putnam Sustainable Leaders fund with Stephanie Dobson. The fund was previously called the Putnam Multi-Cap Growth Fund before it transformed into an ESG fund in March 2018.
Collins, whois a beekeeper in her spare time, had also bet on Danaher, saying she liked how the company tracks recruitment, mentoring and training for employees. She said another top trade wasChipotle Mexican Grill Inc. helped by its commitment to antibiotic-free meat.
Bloomberg’s ranking focuses on funds with at least $100 million in assets that use ESG in their investment process. Since most portfolio managers regard sustainable investing as a long-term bet,the top funds are selected based on their performance weighted equally over one, three and five years.
ESG Funds With the Highest Score in 2019
Rank# | Name | Manager(s) | Score | Benchmark Index | Focus | Assets $M | 1-year total return (%) | 3-year total return (%) | 5-year total return (%) |
---|---|---|---|---|---|---|---|---|---|
1 | Morgan Stanley Institutional Fund - Global Opportunity Portfolio (MGGPX) | Kristian Heugh | 98.1 | MSCI All Country World | ESG | 3,846 | +35.03 | +23.66 | +17.60 |
2 | Brown Advisory Sustainable Growth Fund (BIAWX) | Karina Funk and David Powell | 93.2 | Russell 1000 Growth | Environmentally Friendly | 2,086 | +34.88 | +21.66 | +16.49 |
3 | Morgan Stanley Institutional Fund - International Opportunity Portfolio (MIOPX) | Kristian Heugh | 90.1 | MSCI All Country World Ex-U.S. | ESG | 1,761 | +34.79 | +21.79 | +14.70 |
4 | Calvert Equity Fund (CSIEX) | Joseph B. Hudepohl, Lance V. Garrison, Jeffrey A. Miller and Robert R. Walton Jr. | 90.0 | Russell 1000 Growth | ESG | 3,766 | +36.50 | +21.70 | +13.85 |
5 | Ave Maria Growth Fund (AVEGX) | Adam P. Gaglio and Chadd M. Garcia | 86.8 | S&P 500 | Religiously Responsible | 878 | +37.09 | +19.67 | +13.32 |
6 | Putnam Sustainable Leaders Fund* (PNOPX) | Katherine Collins and Stephanie Dobson | 86.2 | Russell 3000 Growth | ESG | 4,941 | +35.84 | +20.20 | +13.24 |
7 | Amana Growth Fund (AMAGX) | Nicholas Kaiser, Scott Klimo and Monem Salam | 84.8 | S&P 500 | ESG and Islamic | 2,269 | +33.07 | +20.68 | +13.50 |
8 | Morgan Stanley Institutional Fund - International Advantage Portfolio (MFAPX) | Kristian Heugh | 84.2 | MSCI All Country World Ex-U.S. | ESG | 2,397 | +29.72 | +20.89 | +14.68 |
9 | AllianzGI Focused Growth Fund (PGWAX) | Karen B. Hiatt and Raphael L. Edelman | 81.6 | Russell 1000 Growth | ESG | 1,040 | +33.85 | +18.37 | +13.12 |
10 | Iman Fund (IMANX) | Dr. Bassam Osman | 81.5 | Dow Jones United States Islamic Market | Islamic and Religiously Responsible | 137 | +34.68 | +17.52 | +13.27 |
Design & development: Christopher Cannon and Cedric Sam
Editors: Tim Quinson and Alan Mirabella
Methodology: Rankings includeopen-end U.S.-based funds that incorporate ESG, Socially Responsible, Religiously Responsible, Islamic, Environmentally Friendly, Clean Energy, or Climate Change into their investment strategies as noted in the fund prospectus,have total assets of at least $100 million, an equity allocation greater than 80%, and a five-year history. Assets are as ofJan. 27, 2020. Returns are through Dec. 31, 2019.Retail funds were used, either primary or class A shares. The top 10 of the 75 funds in the survey are shown. In the graphic, fund performance is compared with the S&P 500, which not all funds use as a benchmark.