1919 Socially Responsive Balanced Fund

overall rating:

2.2

planets

Chensha Xue
7/25/2022
No items found.

The 1919 Socially Responsive Balanced fund is part of the 1919 Funds, with 211 holdings and a total fund asset of 718.0 Million Dollars. It is claimed that their overall objective is to: 1) utilise strategies to minimise negative impacts of business activities on the environment; 2) contribute to the general well-being of citizens and have respect for human rights; and 3) invest in companies with fair and reasonable employment practices. Being managed by four financial professionals, this fund is ranked as one of the best ESG funds by Forbes in July 2022, scoring high and above average in multiple Morningstar ratings. 

 

The overall transparency of this fund is commendable. Their investment strategy, top holdings, and fund managers are all disclosed. Adhering to the 1919’s Socially Responsive Guidelines, this fund is making an effort to achieve their stated goals via negative screening. Another particularly applaudable aspect of this fund is that their management team is not only experienced financial professionals, but also experts in socially responsible investment and corporate social responsibility. Although there is still room for improvement in terms of portfolio diversity and standard clarity, this fund seems to deserve an overall of 2.2 planets and is therefore recommended to those seeking socially responsible investment. 

What it's made of:

1.6

The Top Ten Holdings of this fund are (NAME, percentage of portfolio): 

 

1) Microsoft Corp., 4.0%; 2) Apple Inc., 3.7%; 3) Alphabet Inc., 3.1%; 4) UnitedHealth Group Inc., 2.3%; 5) Amazon.com Inc., 2.2%; 6) Thermo Fisher Scientific, 2.0%; 7) Eli Lilly & Co., 1.8%; 8) Truist Financial Corp., 1.8%; 9) Bank of America Corp., 1.7%; 10) Danaher Corp., 1.7%. 

 

The diversity of this fund’s investment is moderate, with a major focus on big companies. In particular, technology, financial, and healthcare sectors dominate around half of the portofolio. There is no inclusion of any business that directly engages in sustainable development and renewable energy. In general, the inclusion of companies like Apple and Amazon makes their goal statement less credible. For example, Microsoft has been questioned about their data and privacy problems several times in the past. This undermines the fund’s claim to respect human rights. Also, firms like Amazon have been accused of having high levels of carbon emission for a long time. If the fund can provide more details on why these firms are selected, consumer confidence may be further improved. 

How it's made:

2.5

The cornerstone of 1919’s investment process is proprietary. Their fundamental research mainly focuses on quality, risk management and diversification. In order to construct a socially responsible portfolio which generates high return, this fund attempts to identify the undervalued securities and focus on businesses with high levels of social responsibility. The fundamental principle which the fund adheres to is the 1919’s Socially Responsive Guidelines. According to these rules, they do not invest in companies that have significant direct exposure to fossil fuel real assets. They do not invest in companies that manufacture nuclear weapons or other weapons of mass destruction. They also do not invest in businesses that derive more than 5% of their revenue from production or sale of tobacco products. 

 

One problem with some of the guidelines is the potential ambiguity and difficulty in measurement, especially the fossil fuel one. There is no specific information on what is considered as “direct exposure”, which level is “significant”, and how such standard can be measured and assessed in practice. On top of that, only including real fossil fuel assets may not be enough for environmental consideration and carbon emission reduction. For instance, for companies like Apple and Amazon, the high amount of fossil fuel consumption in their production and transportation process could be a significant part of their carbon footprint, but seems to be barely considered. While it is understood that not all details need to be disclosed to the public, it would perhaps be more assuring if such measurement information is made more available.

Who makes it:

2.5

One commendable aspect of their factsheet is that it clearly states which part of the fund is managed by each member of the team. There are four financial professionals in the portfolio management team, two male and two female, all with over 15 years of industry experience. In particular, three of them are experienced in managing socially responsible investment. Additionally, one female manager is also a social research analyst specialising in corporate social responsibility. In my opinion, this makes their reliability in SRI  particularly high, especially when compared with many other funds without any ESG professional. It is also good to see a well-balanced gender structure in the management team.