ESG mutual funds outperform traditional rivals, study says

Funds incorporating environmental, social and governance analysis in their investment decisions outperformed traditional funds over one- and three-year periods, according to a study released Tuesday by Trucost and RLP Capital.

The study compared the carbon footprints, performance and risk characteristics of the eight largest traditional mutual funds and eight largest ESG funds, both by asset size, in large-cap blend, large-cap growth and midcap blend investment styles for the periods ended June 30.

Findings show that seven of the eight funds that use ESG analysis outperformed the eight traditional funds over both time periods, according to the study, “Carbon Footprints, Performance and Risk of U.S. Equity Mutual Funds.”

Also, all eight ESG funds had higher alpha, or risk-adjusted performance, over the three years.

Among the four traditional and ESG funds in the large-cap blend category, for example, traditional funds had an annualized total return of 12.95% and -9.66% for one and three years, respectively, while the ESG funds returned 16.89% and -6.88%. A peer group of mutual funds in similar ESG strategies returned 13.17% and -10.01% in the respective periods.

The traditional funds studied were American Funds’ Fundamental Investors, Growth Fund of America and Investment Company of America funds; Davis New York Venture Fund; Fidelity’s Contrafund, Leveraged Company Stock and Low-Priced Stock funds; and Vanguard 500 Index Fund.

The ESG funds were the Ariel Fund and Ariel Appreciation Fund; Calvert Social Investment Equity; Domini Social Equity; Neuberger Berman Socially Responsive; Parnassus Fund and Parnassus Equity Income Fund; and TIAA-CREF Social Choice Equity Fund.