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number cruncher

What are we looking for?

Sustainable global equity funds.

The screen

The massive drawdown that has rocked global equity markets has tested the resolve of individual investors and professional fund managers alike. Although the COVID-19 pandemic has captured the attention of many, perhaps hidden amid the noise is the performance of sustainable investments.

The recent drawdown showed a clear picture that having a sustainable view is not independent of investment performance. In Canada, Morningstar has identified mutual funds and exchange-traded funds that have a sustainable approach as stated in their prospectuses and related regulatory filings. On a year-to-date basis ended April 21, I found that of 86 mutual funds and ETFs that have a sustainable mandate, a whopping 70 per cent ranked within the top half of their respective peer groups. This is not a phenomenon just in Canada, but globally, echoed by my colleague Dr. Jon Hale in his analysis of sustainable investments in the U.S. and globally.

Digging deeper, I found that in the category of global equities (Canadian-domiciled funds that invest globally), 21 of 23 sustainable funds outperformed the category average across the universe of 389 funds (both traditional and sustainable). To highlight a few star performers during the downturn, I used Morningstar Direct to screen on global equity funds that:

  • Morningstar considers as sustainable investments overall, sourced from regulatory documents. This can include funds that use: 1) environmental, social and governance (ESG) considerations when picking companies or are actively engaging with company management around these areas; 2) investment strategies that seek to make a measurable impact alongside financial return on issues such as gender and diversity, community development, etc.; and/or (3) invest in environmentally oriented industries, such as renewable energy.
  • Have outperformed the category average of global equity funds as well as the category benchmark index on a year-to-date basis.

Only the oldest share class of each fund in our database was considered.

More about Morningstar

Morningstar Research Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. Morningstar offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors. Morningstar Direct is the firm’s multi-asset analysis platform built for asset management and financial services professionals. Morningstar Canada on Twitter: @MorningstarCDN.

What we found

Shown in the table are the top 10 funds by year-to-date performance along with their associated fees, Morningstar ratings, inception dates and trailing returns. For convenience, the category average for global equity funds, benchmark index and Morningstar’s globally sustainability index are also shown.

Note that in order to receive a star rating, funds must have at least three full years of performance, hence many of these funds have not yet been rated from a performance perspective.

Also shown in the table is the Morningstar Sustainability Rating, or globe rating – a holdings-based analysis that rolls up individual holdings’ ESG risk levels. To be considered material to the risk rating, an ESG issue must have a potentially substantial impact on the economic value of a company and therefore on the risk/return profile of an investment in the company. For example, a company heavily exposed to carbon-based energy will likely be at high risk as the world transitions to a low-carbon economy. The ESG issues that are material vary across industry groups and companies. Ratings range from one to five globes, where a fund with five globes has the lowest exposure to ESG risk.

Readers may conclude the outperformance of these funds is owing to their lower exposure to the energy sector. While this is the case for Canadian equity funds, investors should note that in the global equity category that we are spotlighting today, net exposure to the energy sector was a mere 2.6 per cent (including both sustainable and traditional funds).

This column does not constitute financial advice. It is always recommended to speak to a financial adviser or investment professional before investing.

Select Canadian-domiciled global equity funds

Fund NameMER (%)Star RatingMedalist RatingGlobe (Sustain.) RatingInception DateYTD Ttl. Rtn. (%)1Y Ttl. Rtn. (%)3Y Ann. Ttl. Rtn. (%)5Y Ann. Ttl. Rtn. (%)10Y Ann. Ttl. Rtn. (%)15Y Ann. Ttl. Rtn. (%)
Desjardins SocieTerra Positive Change F1.23n/aBronze2 Globes9/5/201811.8525.76n/an/an/an/a
IA Clarington Inhance Global Eq SRI Cl F1.334 StarsNeutral4 Globes11/30/2009-4.284.089.126.619.93n/a
MD Fossil Fuel Free Equity Fund1.594 StarsBronze3 Globes5/26/2016-4.640.846.65n/an/an/a
NEI Global Dividend RS F1.344 StarsNeutral4 Globes10/30/2007-4.922.735.626.229.34n/a
CI First Asset MSCI Wld ESG Impact ETF0.67n/an/a4 Globes9/17/2019-5.64n/an/an/an/an/a
AGF Global Sustainable Growth Equity2.473 StarsNeutral4 Globes12/31/1991-6.49-2.104.975.476.024.25
RBC Vision Global Equity Fund F0.995 StarsGold2 Globes7/3/2007-6.720.8610.618.4111.46n/a
BMO Sustainable Opportunities Glb Eq F0.904 Starsn/a5 Globes4/28/2016-7.051.678.08n/an/an/a
RBC Vision Fossil Fuel Free Glb Eq F0.98n/aSilver3 Globes8/28/2017-7.69-0.21n/an/an/an/a
Fidelity Sustainable World ETF0.62n/aSilver4 Globes5/31/2019-7.74n/an/an/an/an/a
Morningstar Gbl Mkts GR (gross rtn.) CAD-11.11-5.044.676.4010.487.41
Morningstar GblMkt Sustainability GR CAD-9.15-1.686.077.2010.61n/a
Canada Fund Global Equity-11.38-6.402.544.027.765.30

Source: Morningstar Direct

Data as of April 21. Note that the F-class shares are made available through fee-based advisers who may charge an overall management fee separate from the MER listed here.

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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