The FundGrade A+ Rating is the only awards system in Canada that segments and awards funds with a socially responsible investing (SRI) mandate.
According to RBC Global Asset Management‘s criteria, companies satisfying the SRI mandate, “show leadership in environmental practices and are committed to complying with environmental regulations; respect workers’ rights and encourage equal employment opportunities; adhere to strong corporate governance practices; and do not support the acts of repressive regimes.” They also avoid companies that produce or distribute alcohol, tobacco, pornographic materials, gaming, and military weapons.
In 2014, SRI funds offered by PH&N, Meritas, and NEI, joined the exclusive FundGrade A+ club.
The Fundata FundGrade A+ Award has become one of the most highly coveted investment awards in Canada because it is so exclusive. Less than 1 percent (225 funds out of about 29,000 funds and clones) achieved the award in 2014.
Here’s a look at the winners from the balanced, fixed income, and equity asset classes of 2014 from the universe of eligible funds (i.e. restricted to those funds that are designated as responsible investing funds by the Responsible Investing Association):
SRI Balanced: PH&N Community Values Balanced Fund
PH&N Community Values Balanced Fund is a fund-of-funds holding three other members of the PH&N Community Values fund family: PH&N Community Values Bond, PH&N Community Values Global Equity, and PH&N Community Values Canadian Equity.
The combination has worked out well, as the fund has outperformed the Fundata Canadian Balanced Index in each of the past three calendar years. The fund’s three-year average annual compound return of 12.0 percent is almost four percentage points better than the 8.1 percent for the median of the Canadian Neutral Balanced category median. The five-year standard deviation is 5.8 percent, slightly higher than the group median of 5.0 percent, but this is expected because the fund is holding about 60 percent equity, which is the maximum allowable equity allocation in the Canadian Neutral Balanced category.
SRI Fixed Income: Meritas Income & Growth Portfolio
Meritas Income & Growth Portfolio is another repeat winner from 2013 also employing a fund-of-funds strategy. Holding primarily other Meritas SRI funds, the target asset mix of this fund is actually 65 percent fixed income/35 percent equity.
The Meritas funds, managed by OceanRock Investments Inc., have their own criteria for socially responsible investing. The high-level SRI criteria specified by OceanRock include the following: 1) Respect the dignity and value of all people; 2) Build a world at peace and free from violence; 3) Internalize a concern for justice in a global society; 4) Exhibit responsible management practices; 5) Support and involve communities; 6) Practice environmental stewardship; 7) Direct community development investments.
SRI Equity: NEI Ethical Special Equity Fund
The NEI Ethical Special Equity Fund is a repeat winner from 2013 and is helping debunk the myth that SRI funds typically underperform by also winning an A+ Award in its regular equity category. It’s been a first-quartile performer in three of the past four calendar years, returning 37 percent in 2013 compared with 4.3 percent for the BMO Canadian Small Cap Index.
Of course, the FundGrade methodology considers risk-adjusted performance. Part of the reason for this fund’s success is its limited volatility as can be seen in the accompanying graph. The three-year and five-year annualized standard deviations are 7.5 percent and 8.5 percent respectively, ranking the fund fifth and third in the Canadian Small/Mid-Cap Equity category.
Managed by Calgary-based QV Investors Inc., the fund looks for companies with a market cap between $100 million and $2.5 billion that have passed the environmental, social, and governance (ESG) criteria.
Courtesy Fundata Canada Inc. © 2015. Reid Baker is Director, Analytics & Data at Fundata Canada Inc. This article is not intended as personalized investment advice. Investments mentioned are not guaranteed, involve risk of loss, and are subject to commissions. This article first appeared in the Spring 2015 issue of Your Guide to Responsible Investing, published by Brights Roberts Inc.