What are we looking for?
Canadian-domiciled funds with stated impact objectives.
The screen
For most readers of this column, investing to reach your financial goals is directive No. 1. This said, investing in pursuit of making a positive contribution to society is also something that appeals to many Canadian investors if given the opportunity, according to a 2022 Ipsos poll conducted by the Responsible Investing Association of Canada. Historically, these two approaches were thought to be separate and distinct. However, there are a small set of funds that seek to help investors achieve both objectives. These investment products, aptly named “impact” funds, certainly have an objective to provide financial returns to investors but they also have a stated objective to make measurable societal or environmental impacts with their investments. Across Morningstar’s database of Canadian-domiciled investments, only 42 funds and ETFs have been identified as doing so based on Canadian Investment Funds Standards Committee’s Responsible Investment Identification Framework. The framework looks to funds’ disclosure language to determine the funds’ claims around environmental or social impact, and whether there is a stated intent to provide regular reporting on these objectives. The framework also considers funds that invest primarily in green bonds (where the coupon rate is tied to the ability of an issuer to meet environmentally linked goals) in identifying this type of fund.
Today, we look across this small universe of funds to find those that have performed at least as well as their category peers. To do this, I used the Morningstar Rating for Funds (informally known as the “star” rating) and screened for funds in this universe with a three-star rating or better using the oldest share class of each fund in the universe. Recall that the rating is an objective look-back at the risk-adjusted after-fee performance of the fund, relative to its category peers. I note importantly that the majority of these funds (29 of 42) are less than three years old, which limits the number that have been granted a rating, but nonetheless provide a useful first look at reasonable performers with impact objectives.
What we found
The funds that qualified in the screen are listed in the table accompanying this article, alongside MERs, trailing performance, inception dates, and ratings. Investors are urged to first look at the category to which each fund belongs, given that the rating is meant to measure performance against category peers.
This article does not constitute financial advice, it is always recommended to conduct one’s own independent research before buying or selling any of the funds or ETFs mentioned in this article.
Ian Tam, CFA, is director of investment research for Morningstar Canada.
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Ian Tam, CFA