This week I went to a lunch presentation and the speaker was from Calvert Research and Management, “a leader in Responsible Investing.” Calvert’s four pillars of Responsible Investing are Performance, Research, Engagement and Impact. They focus on investments that are “ESG.” That is, they look for businesses that embrace environmental, social and governance (ESG) values.
Calvert offers various mutual funds, including equity, passive, thematic (water and energy), fixed income and asset allocation. I cannot cover all of them, but I want to share what I learned. First, there may be a correlation between ESG investing and investing performance. I say this because it is difficult to attribute results to just one factor. In the case of the “Calvert Mid-Cap Fund Class I” (CCPIX), the YTD returns for the fund is 24.79%. The Fidelity Mid-Cap fund (FMCSX) is at 21.28% YTD. But the 5-year return for FMCSX is considerably better than CCPIX. Furthermore, the “Vanguard Mid-Cap Index Fund Investor Shares” (VIMSX) has a better 5-year return, a much lower expense ratio and a YTD return of 25.33%.
Let’s compare some critical elements for these three funds.
Given these values, I would be inclined to invest in VIMSX. The reasons are the lower expense ratio, the better diversification (365 stocks), the better yield, the better 5-year return and the lower turnover. Turnover matters in a taxable account because of capital gains. It looks like the manager of CCPIX keeps buying and selling investments. CCPIX has a high expense ratio that is not warranted given the results.
Note one other thing: The CCPIX expense ratio is greater than the dividend yield. That means you get a negative dividend by owning this investment. Rarely have I seen that make much sense. I’m not saying there is zero value in thinking about ESG, but I think that type of focus cannot be sold to investors as the best way to invest. It is a good way and it feels good, but it may not be the best in performance.