The best social funds

I recently completed a thorough review of all the socially-responsible mutual funds available to Canadian investors. Here are some of the ones that came out on top.

Note that this selection is not based on the screening criteria of the funds – each family employs different methods and the priorities vary. These choices are based entirely on the fund’s attractiveness from an investment perspective, taking into account historical performance, risk, managerial strength, quartile positioning, and future prospects. Performance results are as of June 30. Consult a financial advisor before making any purchase decisions.

Ethical Canadian Dividend Fund. This fund hasn’t been around very long (it was launched in October 2002) but so far it has been very impressive with gains of almost 23 per cent in each of 2003 and 2004 and an advance of close to 15 per cent so far this year. The managerial chores are in the capable hands of Robert Vanderhooft of Greystone Management Investments, a well-respected Regina-based company that uses a growth style for stock selection. Some of the major holdings in the portfolio include oil giant EnCana, Telus, Great-West Life, ascan, and the TSX Group. The heaviest weightings are in the financial and energy sectors. The fund pays quarterly distributions but the cash flow is unimpressive – only 8c a unit in the second quarter. So although this is classified as a dividend fund, most of your profits will be from capital gains.

Ethical Special Equity Fund. This small-cap fund has been managed by Leigh Pullen of QVGD Investors since late 1997 and the results over that time have been outstanding. After a difficult start (a loss of 12.9 per cent in 1998), Pullen went on a winning streak that has yet to end. Even in the worst years of the bear market this fund made money – a lot of it. How’s this for a string of great numbers: +25.8 per cent in both 2001 and 2002, +36.4 per cent in 2003, +18 per cent in 2004, and +12.6 per cent so far in 2005. If every socially-responsible fund were putting up numbers like that, they’d have a lot more money flowing in. Pullen invests in stocks with a market cap of less than $500 million that make it through Ethical’s numerous screens. Current large holdings include Mullen Transportation, AltaGas Income Trust, E-L Financial Corp., and Starpoint Energy Trust. This is one of the best funds of its kind in Canada and has been a first or second quartile performer in its category in every year since 2000.

Meritas Jantzi Social Index Fund. This is an index fund with a difference. In this case, the benchmark is the Jantzi Social Index which tracks the performance of a basket of Canadian companies that meet certain criteria. Several of the names in the Index show up in the portfolios of other social funds, such as Suncor, BCE, CN Rail, and the major banks. This is a worthwhile choice if you prefer an indexing approach. The three-year average annual compound rate of return to June 30 was 12.6 per cent, two percentage points better than the category average.

Phillips, Hager & North Community Values Bond Fund. If you can only choose one socially-responsible bond fund, this is it. PH&N has one of the best fixed-income teams in Canada and they have proven their skill again and again over the years. This entry has only been around since October 2002 but some of the company’s other bond funds go back more than three decades, so there is a wealth of experience here. This fund gained 11.1 per cent in the year to June 30 compared to an average of 9.5 per cent for the Canadian Bond category. The MER is a very reasonable 0.82 per cent.