Cue the sad trombone. Maybe their SRI screens aren’t up to snuff.
Like Taco Bell’s mystery “meat” and the butter on your movie theater popcorn, it’s sometimes difficult to know exactly what’s in a mutual fund at any given moment. Style drift and survivor bias have 401(k) plan participants wondering what managers might be up to.
Unfortunately, this goes for climate-focused, carbon-neutral funds as well, many of whom contain big oil investments. Reuters’ data finds that as of the end of October, these climate investment heretics include Climate Assets GBP R Acc, Nomura Global Climate Change Fund and the nobly-named Shinko Global Warming Prevention Equity Fund.
“Of the 20 largest mutual funds designed to address climate change, nine had positive rates of return for 2015,” according to TriplePundit.com, a website that reports on “ethical, sustainable and profitable businesses.” “Of the same 20 mutual funds, six were found to contain investments in oil and gas companies. Of these six, only two had positive returns so far in 2015, while the other four experienced net losses as of November.”
The biggest mutual funds focused on climate risk and the percentage of fossil fuel investments include the following (largest to smallest, as of the end of October):
- Nomura Global Climate Change Fund – 5.79%
- HBSC GIF Global Equity Climate Change AC USD – 5.75%
- Jih Sun Anti-Global Warming Fund – 3.05%
- Shinko Global Warming Prevention Equity Fund – 1.81%
- Mirova Global Transition Energy Equity Fund RAE – 1.36%
- Climate Assets GBP R Acc – 1.27%
Granted, some fossil fuel companies are taking steps to mitigate their carbon footprint, and certain green fund managers therefore justify their inclusion as a reward, but TriplePundit concludes with the following sage advice:
“As always, individual investors should practice due diligence and thoroughly research mutual funds before buying shares. Knowing how well a given fund performs in both its monetary returns and its ethical makeup is key to getting the most out of any portfolio.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
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