What are we looking for?
Global equity funds that use sustainable investing approaches.
The screen
Morningstar’s most recent report around sustainable investing shows that global appetites to invest sustainably have softened in the wake of a higher interest rate environment. This pattern holds true in Canada, where fewer sustainable investment funds have been launched in the past couple of years. Yet this scenario contrasts with the sentiments of Canadian investors. According an Ipsos survey of 1,005 Canadians conducted by the Responsible Investment Association of Canada, almost two-thirds (64 per cent) of Canadians are interested in investing sustainably. However, that same survey points to investor concerns around greenwashing, and the general confusion around how to invest sustainably. This is hardly a surprise, given that the approaches to sustainable investing can vary widely from one fund to the next, making comparability a difficult task.
All this said, successful sustainable funds do exist for Canadian investors. Today, I use Morningstar Direct to screen for some examples within the global equity category (the largest category, containing roughly 1,900 share classes of funds and ETFs). To start out, I searched for funds that the Canadian Investment Funds Standards Committee (a cross-industry body that oversees fund categorization in Canada) has flagged as using one or more of six sustainable approaches. Investors are encouraged to read more about the those approaches here, as each caters to different investor preferences. I note importantly that this industry body makes no claims about the funds’ ability to meet sustainable objectives, only that they have disclosed sustainable objectives in their regulatory documents – a very important starting point to understand what claims are being made by the fund.
I then screened for funds that have performed at least on par with their category peers in the past on a risk-adjusted basis, as denoted by a Morningstar rating of three stars or greater. Additionally, I placed a screen on funds that Morningstar believes will outperform category peers on an after-fee basis, denoted by a Morningstar medalist rating of gold, silver or bronze (derived by our qualitative analysis of the people running the fund, the investment process, and the stewardship qualities of the parent firm).
Only ETFs and F-class mutual funds were considered in the search (noting that some F-class, or fee-based mutual funds, may be available through discount brokerages, or via a fee-based adviser who will charge an advice fee separate from the listed management expense ratio, or MER).
What we found
The funds that qualified in the screen are listed in the accompanying table, alongside their MERs, historical performance, and ratings. The far right of the table indicates which of the six sustainable investment approaches that the CIFSC has noted appear in prospectus language, noting that a fund can use more than one sustainable investing approach.
This article does not constitute financial advice, it is always recommended to conduct one’s own independent research before buying or selling any of the funds or ETFs mentioned in this article.
Ian Tam, CFA, is director of investment research for Morningstar Canada.
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Ian Tam, CFA