Social impact investing has a lot of momentum behind it, especially through impact investing funds that look at the social and environmental impact of companies considered for investment. We are poised to see a lot of growth in ESG and Impact investing in 2021, so to prepare, we took a look at the Top Impact Investing funds for 2021.
Social impact funds, or an impact fund of any kind, are investing in companies that not only produce a reasonable return on investment, but also operate in a manner that has a positive impact on society and/or the environment.
Think of the fund manager for an impact fund as doing a lot of the work to make sure:
But why is impact investing so popular and why are their so many more impact investing funds available for an impact investor?
Think of a company like Exxon and the negative social and environmental impact it has extracting its product from the ground. Also consider the amount of pollution that is generated by people consuming the finished product (gasoline, etc.). Do we want to encourage that kind of business to grow?
Now consider a company like NextEra Energy, that is a electric utility in the southeast United States. They produce electricity, but much of it is through renewable energy sources like wind and sun. Do we want to encourage a company like NextEra Energy to grow?
The bottom line is these examples above show two high potential companies. But it is easy to distinguish them when we look at the societal impact alongside a financial return when making investment decisions. If you can make money investing in businesses that are doing good things for society, that is a home run.
But not all people have the time to determine if an individual social enterprise is doing enough to justify an investment. Not all choices are as clear cut as Exxon vs. NextEra Energy, and many require more analysis.
That is where deciding to invest in a social impact fund takes a lot of the pressure off to analyze the financial performance and the social impact of different companies. These impact funds might be private equity funds, or they might be mutual funds sponsored by some of the biggest investment firms out there.
Let’s take a look at three Impact Funds Ready for Growth:
State Street Gender Diversity Index (ticker symbol “SHE”) – As the name implies this fund with approximately $150 million in assets “seeks to provide exposure to US companies that demonstrate greater gender diversity within senior leadership than other firms in their sector”.
Average return over each of the last three years was approximately 7%.
Largest holdings include well-known companies like Texas Instruments, PayPal, and Visa.
iShares MSCI ACWI Low Carbon Target ETF (ticker symbol “CBRN”) – This fund, sponsored by investing giant Blackrock, has approximately $500 million in assets under management.
It invests in companies that have a “lower carbon exposure than that of the broader market”. Apple, Microsoft, and Amazon are three of its biggest holdings. Microsoft is a particularly good fit, having declared that they will be carbon neutral by 2030.
Average annual return over the last five years was approximately 10%.
Vanguard FTSE Social Index Fund Admiral Shares (ticker symbol “VFTAX”) – This fund, sponsored by Vanguard, is quite large with $9 billion in assets under management.
This fund specifically “excludes stocks of certain companies that do not meet the standards of the United Nations global impact principles and companies that do not meet certain diversity standards”.
Its largest holding are Apple, Microsoft, and Amazon, which happen to be the same top three as the Blackrock fund above.
This is a newer fund, having been started in February 2019. Its return since inception has been an attractive 17%.
Summary:
Investing in companies that do good for society is a megatrend that is here to stay.
Finding an attractive social impact fund to invest in will take some of the administrative work off your shoulders.
Each of the three funds discussed above provide good investment returns within a diversified portfolio.
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