FundGrade RI A+™ Awards for 2016
By John Krisko, CFA, and Reid Baker

The FundGrade RI A+ Award is given annually to the best Responsible Investment (RI) funds in three broad categories: Equity, Balanced and Fixed Income. Fundata’s FundGrade methodology is applied to a select universe of RI funds, with the top-ranked funds being awarded the A+ rating.

The Responsible Investment Association (RIA) provides the universe of RI funds and defines Responsible Investment as “the integration of environmental, social, and corporate governance (ESG) criteria in the selection and management of investments.”

Here’s a look at the winners of the FundGrade RI A+ Award for 2016.

RI Equity

NEI Ethical Special Equity Fund is the winner of the Equity FundGrade RI A+ Award for 2016. The fund consistently ranks among the top Equity RI funds and has previously won twice in this category, most recently in 2014. The reasons why are immediately apparent and begin with an impressive 10-year Sharpe ratio that, at 0.54, is more than 50% above the next highest RI Equity fund. This trend continued in 2016 with NEI Ethical Special Equity Fund adding an unmatched 1-year Sharpe ratio of 2.68 to its risk-adjusted performance track record, a result of achieving one of the highest returns and lowest standard deviations in the category.

The year, however, was not without its challenges. Despite earning an excellent return of 23%, the fund underperformed relative to its Canadian small-cap benchmark. Sub-advisor QV Investors notes that “a lack of exposure to gold-related equities…has been costly in the short-term.” Indeed, the S&P/TSX Global Gold Index (TR) finished the year with a 51% return, but a standard deviation of 52% highlights the volatile nature of the sector.

In addition to unstable returns, investment in gold mining faces a number of ESG challenges, including human rights violations and corruption, and environmental destruction. These are issues that should give all investors pause. Performance that violates ESG principles is not sustainable. Though ethical producers do exist and there is growing awareness in the industry, it is often difficult to gain exposure within the context of Responsible Investment.

RI Balanced

The PH&N Community Values funds have been very successful in the RI space and beyond. Having collected a total of five RI A+ awards in the four years since Fundata introduced the RI A+ Awards, the PH&N Community Values funds are the most successful group of RI funds. The PH&N “community values” mandate includes investing in businesses that show leadership in environmental practices and are committed to complying with environmental regulations, respect workers’ rights and encourage equal employment opportunities, adhere to strong corporate governance practices, and do not support the acts of repressive regimes. These strong values, amongst other investing criteria, have led to two more RI A+ awards for 2016: one in the Balanced category for the PH&N Community Values Balanced Fund, and one in the Fixed Income category for the PH&N Community Values Bond Fund.

This is the third consecutive year that the PH&N Community Values Balanced Fund has won the RI A+ award in the Balanced category. Solid historical performance has landed the fund in the first quartile for 1-, 3-, 5-, and 10-year returns as well as in each calendar year since 2012. As of Dec. 31, the 5-year average annual compounded rate of return of 9.3% is more than three percentage points higher than the average RI Balanced fund. The current equity/fixed income split is 64%/36%, which is accomplished by holding three other Community Values funds: the Bond Fund, the Canadian Equity Fund, and the Global Equity Fund.

RI Fixed Income

The PH&N Community Values Bond Fund is a first-time winner of the RI A+ award. Operating in the Canadian Fixed Income category, this fund has been a first-quartile performer in eight of the past 10 calendar years and each of the 1-, 3-, 5-, and 10-year compound returns. As of Dec. 31, the 5-year return is 3.1%, which outpaces the average 2.0% logged by RI fixed income funds. This fund holds primarily a mix of Canadian government bonds, comprising 58% of the portfolio, and Canadian corporate bonds, accounting for 33%.

Growing RI demand

The universe of RI funds continues to grow, reflecting greater demand for RI products as a result of increased awareness of the benefits of investing responsibly. This is consistent with the results of an Ipsos Reid survey commissioned by OceanRock indicating a desire, particularly among Millennials, to consider their own investments within an RI framework. As this generation grows their assets and increases their participation in financial markets, so too will the importance of responsible investing. Fundata will continue to provide investors with key evaluation metrics including the FundGrade RI A+ Awards, Canada’s only risk-adjusted grading scheme focused on RI funds.



John Krisko, CFA, BBA, is Senior Analyst, Analytics & Data, at Fundata Canada Inc. Reid Baker is Director, Analytics and Data, at Fundata Canada Inc. This article is not intended as personalized investment advice. Securities mentioned are not guaranteed, involve risk of loss, and are subject to commissions.
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