The Harper government has finally decided that green is good. Actually, the decision was forced upon them by a public that is increasingly concerned about issues such as global warming, but no matter. If Ottawa wants to subsidize fuel-efficient cars and penalize big carbon dioxide producers, that’s just fine.
Of course, they’re rather late in joining the party. Some Canadians have been doing their share and more for environmental protection for many years, including practicing socially-responsible investing (SRI).
In fact, the first socially-responsible fund to be launched in Canada celebrated its 21st birthday in January. Ethical Growth Fund started life in early 1986, with VanCity Credit Union as its sponsor. It has been a respectable performer with an average annual compound rate of return of 8.1 per cent over the 20 years to March 31. Sure, you could have done somewhat better elsewhere but that’s a decent result when you take into account the fact the managers were limited in the stocks they could select.
The Ethical family has since evolved into the largest SRI fund group in the country with 10 stand-alone funds plus several portfolios. Apart from Ethical Growth, which has looked much better since the management was taken over by Robert Hammill of Guardian Capital in 2004, two other funds in this group stand out.
Ethical Canadian Dividend Fund. This fund is evidence that socially-responsible investing does not necessarily mean inferior returns. In fact, it has handily beaten the peer group performance ever since it was launched in October 2002 – fortuitously, just when the Millennium Bear Market hit bottom and stocks were dirt cheap. The fund got a new management team in mid-2006 when responsibility was shifted from Robert Vanderhooft of Greystone to Highstreet Asset Management and the most recent returns have been a little soft as a result of the government’s announced tax on income trusts – the fund has a fairly large trust component (currently about 19 per cent). But that was a one-time event and we like the conservative nature of the stock portfolio with its strong emphasis on banks and insurance companies. Distributions are paid quarterly but except for the year-end capital gains payment in December they tend to be quite low so this is not the best choice if cash flow is your main priority. But if you’re looking for a well-managed equity fund for your RRSP, this one will work well. Rating: $$$.
Ethical Special Equity Fund. This small-cap fund has been a top performer for several years with a five-year average annual compound rate of return of 18.9 per cent (to March 31), four percentage points above the category average. It’s currently in a bit of a slump but we expect that’s just a hiccup. The fund scored almost unbelievable gains all through the bear market, advancing 25.8 per cent in both 2001 and 2002 while most equity funds were bleeding red ink. It continued strong when stocks rebounded, adding 36.4 per cent in 2003 and double-digit gains in each subsequent calendar year. Thanks to the outstanding bear market performance, the risk profile is much better than average for a small-cap fund so we have a classic low-risk/high-return entry here. Some of the top holdings in the portfolio are E-L Financial, AltaGas Income Trust, and CCL. I am maintaining my rating at the top $$$$ level despite the recent underperformance in anticipation of a return to past glories.
Check with your financial advisor to see if any of these funds are right for your needs.