SUSTAIN Index Reverses Two Month Lag

The SUSTAIN Large Cap Equity Fund Index, which tracks the total return performance of the ten largest actively managed large cap U.S. oriented equity mutual funds that employ a sustainable investing strategy beyond absolute reliance on exclusionary practices, registered a gain of 2.1% in September and outperformed the S&P 500 Index by 0.037%, or 37 bps, with its advance of 2.06%. The SUSTAIN Index benefited from the outperformance achieved by 5 of the 10 index constituents that recorded total return gains ranging from 2.18% to 2.73%. For the quarter ended September 2017 as well as the year-to-date interval, the SUSTAIN Index lags the S&P 500 Index by 0.82% and 1.257%, respectively.  Refer to Chart 1.

Five of the Ten Component Funds Registered Gains in Excess of the S&P 500 Index

Five of the ten funds that comprise the index exceeded the performance of the S&P 500 over the course of the month. These were led by the TIAA-CREF Social Choice Equity Fund Institutional Class (TISCX) that recorded an increase of 2.73%.  The fund benefited from its sectoral alignment with the index and its estimated 7% exposure to small capitalization stocks whose performance eclipsed the S&P 500 during the month of September after lagging behind for much of this year[1].  At the same time, the fund is trailing the index for the quarter and year-to-date intervals.  At the other end of the range is the Pax Large Cap Fund Institutional Investor (PXLIX) which produced a positive but below index result of 1.19%.  The fund excludes the biggest carbon emitters including companies significantly involved in coal, tar sands oil and utilities that are over-reliant on coal.  It maintained less than 1% exposure to the energy sector that gained 10.25% during the month but this did not fully offset its avoidance of utilities that dropped almost -4% in the same month.  The fund also trails the S&P 500 Index for the quarter and year-to-date time periods.  Refer to Table 1.

None of the Funds Beat the S&P 500 Index in the Quarter While Two Funds Stay Ahead Year-To-Date

The SUSTAIN Index is lagging the broad market in the third quarter, gaining 3.7% versus the 4.48% registered by the S&P 500 Index. Except for the Domini Impact Equity Fund Investor Shares (DSEFX) which met the 4.48% increase achieved by the S&P 500, the other nine sustainable funds generated lower total return results.  During the year-to-date period, only two funds managed to outperform the S&P 500 Index.  These include Calvert Equity Portfolio Class A (CSIEX), up 17.59%, and Sentinel Sustainable Core Opportunities Fund Class A (MYPVX), up 14.48%.

SUSTAIN Index Explained

The index, which was initiated as of June 30, 2017 with data back to December 31, 2016, tracks the total return performance of the ten largest actively managed large cap domestic equity mutual funds that employ a sustainable investing strategy beyond absolute reliance on exclusionary practices for religious, ethical or social reasons. While methodologies vary, to qualify for inclusion in the index, funds must actively apply environmental, social and governance (ESG) criteria to their investment processes and decision making. In tandem with their ESG integration strategy, funds may also employ exclusionary strategies along with impact oriented investment approaches as well as shareholder advocacy.

Multiple funds managed by the same management firm may be included in the index, however, a fund with multiple share classes is only included in the index once, based on the largest share class in terms of assets. The index is equally weighted, it is calculated monthly and rebalanced once a year as of December 31.

The combined assets associated with the ten funds stood at $21.2 billion and represent about 13.7% of the entire sustainable US equity sector that is comprised of 220 funds/share classes, including actively managed funds and index funds, with $154.4 billion in assets under management[2].

[1] Fund Prospectus benchmark is the Russell 3000 Index.

[2] With all share classes combined, total net assets=$30.8 billion or 20% of the sustainable US equity sector.