Optimized SRI Index Funds: Seeking Impact and Returns

Index funds are increasingly embraced by investors seeking market-based returns at relatively lower costs than actively managed funds. Even within the specialized field of socially responsible and ESG-driven mutual funds, investors are turning to indexes for their consistent performance and as a platform for the integration of a full range of impact investing strategies. We anticipate this trend will continue, and even increase, as investors understand that they can responsibly integrate their values into their investment portfolios.

SRI index funds use several different approaches – an optimized SRI index fund blends the benefits of market index funds with making a positive impact. Optimized index funds seek to track the returns of a public benchmark index within a narrow range, while not using all of the constituents of the index. For socially targeted funds, this is typically done by applying a set of exclusionary screens such as companies affiliated with gambling, tobacco, or weapons production. Fund managers may also exclude companies on the basis of environmental, social, and governance (ESG) factors.

No need to choose between impact and performance

Investment products that seek to change the world, but fall short in delivering the financial results shareholders need, fail to deliver on their promise to investors. Screened optimized index funds are a pragmatic response to a complex investment landscape where many investors want to invest with their values, but also want predictable performance relative to public benchmarks.

For SRI optimized index funds, stable ownership of a range of companies and industries provides a platform for helping investors integrate their values into their investment decisions. Exclusionary screening is the foundation for many SRI strategies, but the best funds also actively advocate for change in the companies in which they invest. Active proxy voting, investing to bolster underserved communities, and shareholder advocacy can all be accomplished in optimized index funds.

Shareholder advocacy done well often takes years to accomplish. Building rapport with company management teams also takes time. Optimized index strategies afford shareholder advocates with long, stable holding periods that allow for a measured, strategic approach to advocating for corporate change.

It is our view that this prophetic part of investing – encouraging positive corporate change – is enhanced through SRI optimized index strategies, especially for investors also hungry for consistent, potentially predictable performance.

Helping advisors help their clients

For financial advisors, the consistent performance delivered by optimized indexes provides a platform for stable assets under management and easier conversations with clients. Advisors can focus on helping clients act on things they can control like their rate of savings, objectives, and tolerance for risk, rather than defending the latest quarterly performance report from an underperforming manager.

And by using optimized SRI index funds, advisors help clients integrate their values into their investment portfolios and make a transformative difference in the world while not compromising on expected performance.

For more on SRI index funds, read the full whitepaper here.

The application of social screens may cause the fund to lag the performance of its index.

Consider the fund’s investment objectives, risks, charges and expenses carefully before you invest. The fund’s prospectus and summary prospectus contain this and other information. Call 800-977-2947 or visit praxismutualfunds.com for a prospectus, which you should read carefully before you invest. Funds advised by Everence Capital Management and distributed by Foreside Financial Services, LLC.

Topics: Mutual Funds, index, Impact Investing, ESG



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