Large-Cap US Sustainable Funds Lag Benchmarks for the Year to Date

US large-cap sustainable funds have lost 5.93% in the year through April 30, lagging a range of benchmarks. By comparison, the Morningstar US Large Cap Index lost 5.28%, the Morningstar US Sustainability Index lost 3.06%, the Morningstar US Market Index lost 5.19%, while the SPDR S&P 500 ETF SPY lost 4.94%.

The period includes all-time highs for broad US benchmarks, including the Morningstar US Sustainability Index, which peaked on Feb. 18. The market trended down after the peak, driven by signs of a weakening economy and concerns about announced tariffs on Canada and Mexico, before comprehensive global tariffs triggered a global selloff two weeks later on April 2. 

This article looks at the performance of the largest US sustainable big-cap funds during the same period, as well as the five top-performing US large-cap sustainable funds so far this year. Sustainable investing has become a focus for many investors who want to generate strong financial returns while supporting environmentally and socially responsible practices.

Methodology

To locate our sustainable funds, we used Morningstar Direct to screen for large-cap US equity. We selected funds from the oldest share class that fell into the sustainable investment overall category. The funds from this screen were ranked by their fund size and then, separately, by total return. We analyzed the largest five sustainable funds and compared them with the SPDR S&P 500 ETF and the Morningstar US Market Index. This yielded 106 funds.

5 Largest US Sustainable Funds

Parnassus Core Equity Fund PRBLX

“The investment seeks to achieve both capital appreciation and current income. The fund’s objective is to achieve both capital appreciation and current income by investing primarily in a diversified portfolio of equity securities.

“This ESG-oriented approach has its merits as focusing on quality companies and downside protection in a compact, roughly 40-stock portfolio has keyed the fund’s success. Since Todd Ahlsten became a manager on the strategy (US-based Parnassus Core Equity), the Investor shares have outperformed the S&P 500 in almost every market correction, including the 2007-09 global financial crisis, 2018’s end-of-year pullback, and early 2020’s pandemic-driven selloff. Its emphasis on companies with stable competitive footing helps drive its resilience.”

-Stephen Welch, Morningstar Senior Analyst

• Morningstar ESG Risk Rating: High
• Morningstar Rating: ★★★★
• Morningstar Category: Large Blend

Vanguard FTSE Social Index Fund VFTNX

“The investment seeks to track the performance of the FTSE US Choice Index Index that measures the investment return of large- and mid-capitalization stocks. The index is composed of large- and mid-cap stocks of companies that are screened for certain environmental, social, and corporate governance criteria by the index provider.

“Its portfolio managers benefit from the firm’s global infrastructure and advanced portfolio management technology, which facilitates cost-efficient trading around the globe. The infrequent turnover of managers, coupled with Vanguard’s practice of rotating them across various funds, enhances their expertise and understanding of different market segments.”

-Lan Anh Tran, Morningstar Analyst

• Morningstar ESG Risk Rating: Above Average
• Morningstar Rating: ★★★★
• Morningstar Category: Large Blend

iShares ESG Aware MSCI USA ETF ESGU

“The investment seeks to track the investment results of the MSCI USA Extended ESG Focus Index. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash, and cash equivalents. The underlying index is an optimized equity index designed to reflect the equity performance of US companies that have favorable environmental, social, and governance characteristics (as determined by the index provider), while exhibiting risk and return characteristics similar to those of the MSCI USA Index (the ‘parent index’).

“The fund further tethers stock weightings to those of the parent index. This keeps performance in line with its tracking-error target. Sector weightings must remain within 5 percentage points of those in the MSCI USA Index, and individual positions can’t deviate by more than 2 percentage points. The resulting portfolio has a similar makeup as the Morningstar Category average and category benchmark: the Russell 1000 Index. Its active share against the category index tends to hover between 20% and 25%, or much lower than other ESG-intentional peers. Most of the fund’s main return drivers, its top holdings, overlap with those of the category index.

“The fund charges a 0.15% expense ratio, which is competitive in its category. This should preserve the performance advantage earned by the fund’s diversified portfolio over its category average.”

-Lan Anh Tran, Morningstar Analyst

• Morningstar ESG Risk Rating: Above Average
• Morningstar Rating: ★★★
• Morningstar Category: Large Blend

Vanguard ESG US Stock ETF ESGV

“The investment seeks to track the performance of the FTSE US All Cap Choice Index. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index. The index, which is market-capitalization-weighted, is composed of large-, mid-, and small-cap stocks of companies located in the United States that are screened for certain environmental, social, and corporate governance criteria by the index provider, which is independent of Vanguard. Vanguard ESG U.S. Stock ETF does not exclusively target firms with best-in-class ESG practices, so the resulting portfolio excludes only around 300 names out of the 1,800-plus stocks in its starting universe.

“Vanguard ESG US Stock ETF shows 19.2% involvement in carbon solutions. This percentage surpasses the 14.1% average involvement of its peers in the large-blend category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on. By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, thermal coal, and small arms. The fund aims to avoid or minimize holdings in companies breaching international norms, including the UN Global Compact or the Universal Declaration of Human Rights.”

-Morningstar Manager Research

• Morningstar ESG Risk Rating: Above Average
• Morningstar Rating: ★★★
• Morningstar Category: Large Blend

Brown Advisory Sustainable Growth Fund BAFWX

“The investment seeks to achieve capital appreciation. The fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of sustainable domestic companies. It invests primarily in the securities of medium- and large-capitalization companies that Brown Advisory LLC believes have the fundamental strengths (strong financials and business models) to outperform their peers and deliver above-average earnings growth over a market cycle, effectively implement sustainable business advantages, and have attractive valuations.

“Brown Advisory Sustainable Growth Fund holds itself out to be a sustainable or ESG-focused investment. In other words, ESG concerns are central to the investment process of this strategy. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. One key area of strength for Brown Advisory Sustainable Growth Fund is its low Morningstar Portfolio Carbon Risk Score of 2.86 and very low fossil fuel exposure over the past 12 months, which earn it the Morningstar Low Carbon Designation. Thus, the companies held in the portfolio are in general alignment with the transition to a low-carbon economy.”

-Morningstar Manager Research

• Morningstar ESG Risk Rating: Above Average
• Morningstar Rating: ★★★
• Morningstar Category: Large Growth

5 Top-Performing Sustainable Funds

Janus Henderson US Sustainable Equity ETF SSPX

“The investment seeks long-term growth of capital. The fund pursues its investment objective by investing, under normal circumstances, at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities that are economically tied to the US. The fund generally invests in a core group of 30‑50 equity securities, which consist primarily of common stocks but may also include other types of instruments, such as warrants. The fund will invest primarily in larger, well-established companies but may also invest in midsize and small companies.

“Over the past year, it trailed the category index, the Russell 1000 Growth Index, by an annualized 7.1 percentage points and underperformed its average peer by 4.1 percentage points. And more importantly, when extended to a longer time frame, the strategy’s performance looks bleak. On a three-year basis, it underperformed the index by an annualized 4.3 percentage points.”

—Morningstar Manager Research

• Morningstar ESG Risk Rating: High
• Morningstar Rating: ★★
• Morningstar Category: Large Growth

iShares ESG MSCI USA Min Vol Factor ETF ESMV

“The investment seeks to track the investment results of the MSCI USA Minimum Volatility Extended ESG Reduced Carbon Target Index. The underlying index is designed to measure the performance of large- and mid-capitalization US equity securities that reflect the performance of a minimum volatility strategy and, relative to the MSCI USA Index, have higher favorable ESG characteristics and lower carbon exposure. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash, and cash equivalents. It is nondiversified.

“Over the past year, it beat the category index by an annualized 1.4 percentage points, and outperformed its average peer by 3.7 percentage points. But more importantly, when widening the time horizon, the strategy was bested by the index. On a three-year basis, it underperformed the index by an annualized 1.4 percentage points.”

-Morningstar Manager Research

• Morningstar ESG Risk Rating: Above Average
• Morningstar Rating: ★★★
• Morningstar Category: Large Blend

SPDR MSCI USA Gender Diversity ETF SHE

“The investment seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the MSCI USA Gender Diversity Select Index that tracks US large- and mid-cap companies exhibiting certain gender diversity and diversity management characteristics. Under normal market conditions, the fund generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index.

“The fund’s Process Pillar is rated as Above Average, because it sits in a passive-friendly Morningstar Category, although it has a moderately concentrated portfolio; however, it largely represents the large-blend category’s opportunity set. Historically, the large-blend category has been one of the best places for passive investing.”

-Morningstar Manager Research

• Morningstar ESG Risk Rating: Average
• Morningstar Rating: ★★★
• Morningstar Category: Large Blend

Eventide Large Cap Focus Fund ETLIX

“The investment seeks to provide long-term capital appreciation. The fund seeks to achieve its investment objective by primarily investing in a broad range of equity securities of large-capitalization companies. Under normal market conditions, the fund invests at least 80% of its net assets in large-capitalization companies.

“Eventide Large Cap Focus Fund has an asset-weighted Carbon Risk Score of 6.5, indicating that its companies have low exposure to carbon-related risks. These are risks associated with the transition to a low-carbon economy such as increased regulation, changing consumer preferences, technological advancements, and stranded assets.”

-Morningstar Manager Research

• Morningstar ESG Risk Rating: High
• Morningstar Rating: None
• Morningstar Category: Large Blend

Calvert Equity Fund CSIEX

“The investment seeks growth of capital through investment in stocks believed to offer opportunities for potential capital appreciation. The fund normally invests at least 80% of its net assets, including borrowings for investment purposes, in equity securities (common stock). It will normally invest in common stocks of companies having market capitalizations that rank among the top 1,000 US listed companies. The fund may invest up to 25% of its assets in US-dollar-denominated securities of foreign companies that trade on US exchanges or in the over-the-counter market (including depositary receipts, which evidence ownership in underlying foreign stocks).

“But the strategy’s long-term record remains solid overall. Thanks partly to its relatively reserved traits, it has much better Morningstar Risk ratings than its average peer and both indexes over three years, five years, and since the team took over in June 2015. It also has attractive downside-capture ratios over those periods. Meanwhile, the institutional share class has posted a 13.8% annualized return and a 9.4% Morningstar Risk-Adjusted Return on the team’s watch.”

-William Samuel Rocco, Morningstar Senior Analyst

• Morningstar ESG Risk Rating: High
• Morningstar Rating: ★★★
• Morningstar Category: Large Growth