Ethical leads annual social funds survey

(May 2, 2005) Ethical’s Special Equity and Canadian Dividend funds topped Corporate Knights magazine’s third annual survey of Canada’s socially responsible investment fund universe.

The Ethical Dividend Fund scored 94 out of a possible 100 points, while the Special Equity product garnered 83 points. The Toronto-based magazine uses a number of factors to determine the top funds, focusing on performance (50%), but also including engagement (15%), research (12.5%), community investment (6.25%), non-SRI products (6.25%), disclosure voting records (5%) and disclosure voting policies (5%).

Companies are not penalized for screens, or a lack thereof, although the study does include a list of screens, both negative and positive, for all funds.

Strong performers included Acuity’s Clean Environment Balanced Fund, with 76 points, Ethical’s Income Fund (76), Phillips, Hager & North’s Community Values Bond Fund (76) and the Meritas Canadian Bond Fund, at 72 points.

In terms of social factors only, Mackenzie’s Universal Sustainable Opportunities Capital Class Fund bettered all others with an impressive score of 100. Mackenzie also has the highest number of screens — 16 in all, both negative and positive.

In fact, social scores were slightly higher across the board, notes Corporate Knights editor-in-chief Toby Heaps. “There’s a little bit more disclosure in terms of proxy voting records and policies. Part of that is because funds are getting ready for regulators to order them to disclose proxy voting, though it’s not a formal requirement yet.”

Performance-wise, Ethical’s Canadian Dividend Fund was number one, with 97 points. That fund has a one-year return of 23.9%. Acuity’s Clean Environment Balanced hit 95, with a 10-year return of 8%, one of only 10 long-term SRI funds (Ethical Special Equity placed first with a 10-year return of 15%). The Mavrix Sierra Equity Fund, with a one-year return around 24%, scored 93 on performance.

Despite some decent performance numbers, SRI funds are still failing to make a significant dent in the overall fund market, Heaps says, noting that total SRI assets have shrunk to about $4 billion from $5 billion a few years ago.

“Part of that is market driven, but less than 1% of the $500 billion mutual fund industry is in SRI, even though most polls say Canadians are interested in social investing,” he says. “I think that’s because there’s confusion as to what an SRI fund is. Most people think they have different holdings than other funds, but the reality is that most of the holdings are the same with only about a 5% to 10% difference. Where they bring value is in shareholder engagement and social and environmental risk.”

“[Investors] still see it as ‘I’m going to buy my SRI fund and I’m not going to own any nasty companies,’ when the reality is they’re still going to own the same nasty companies but their fund manager and the SRI fund is going to try and improve those companies.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com, with additional reporting by Kate McCaffery