1919 Socially Responsive Balanced Fund Class A (NYSEARCA:SSIAX)

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Hari Kukreja
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While the 1919 Socially Responsive Balanced Fund Class A (“the Fund”) has been successful in generating returns in recent years, the same cannot be said for the socially responsive goals it has set itself. Social responsiveness is generally defined as a person or entity’s duty to make a positive contribution to the community and environment around them. A sustainably-minded investor looking at this definition and hoping to see meaningful change being enacted by the fund’s holdings is likely to be disappointed and is best served investing elsewhere. As such, I have deemed this fund deserving of 0.5 planets.

What it's made of:


The Fund is a US$919 million balanced fund made up of about 66.9% equity, 23.5% fixed income securities and 9.6% cash or cash equivalents. The fund is highly diversified with securities across the technology, financial, healthcare, industrials, consumer discretionary, consumer staples, communication services and utilities sectors. Its top ten equity holdings by value are Microsoft (3.9%), Apple (3.6%), Alphabet Class A (3.1%), Amazon (2.6%), NVIDIA (2.3%), Bank of America (2.2%), Thermo Fisher Scientific (1.8%), Danaher Corp. (1.7%), UnitedHealth Group (1.7%), The Charles Schwab Corp. (1.7%).


The Fund has a Morningstar sustainability rating of 20.03, with three of their top ten equity holdings having ratings above 24. Not only is this a surprisingly high risk score for an ESG fund, but the socially responsive goals of the fund imply that it should invest in companies who are actively impacting sustainability in a positive manner in their respective industries. Looking down the list of their top ten equity holdings it is hard to identify a standout company that fits this description.


Further down their list of holdings, however, there are two fantastic examples of socially responsive companies that the Fund invests in. The first is Trex company, who take recycled plastic bags and scrap wood (95% of their products are made from recycled material) to manufacture longer-lasting, wood-alternative outdoor decking products. The second is Hannon Armstrong Sustainable Infrastructure Capital (“Hannon Armstrong”), who provide financing to sustainable infrastructure projects. Hannon Armstrong “require that all prospective investments are neutral to negative on incremental carbon emissions or have some other tangible environmental benefit, such as reducing water consumption”. They also actively report on the future emissions that have been avoided as a result of their investments. Trex and Hannon Armstrong make up 1.1% and 0.7% of the Fund’s holdings respectively and it would be great to see the Fund invest a higher percentage of their value in them as well as other sustainability leaders like them.


On the other hand, there are a number of  “red flag” companies on the Fund’s holdings. The first of these is Steel Dynamics, which have a 34.29 Morningstar/Sustain rating. In 2016, Steel Dynamics paid US$4.6 million in a settlement after being accused of participating in a conspiracy with other steel manufacturers to restrict steel production in 2008. In 2021 they were ordered to pay a civil penalty of US$475,000 and upgrade their air pollution control equipment after the US EPA noted multiple air pollution violations during their inspections. On top of its exposure to steel, the Fund has investments in other large emitters of greenhouse gases. These include Blackrock and Goldman Sachs who still have significant investments in fossil fuels and Amazon, who alone have the carbon footprint of a small country. Other examples of red flag companies are American Water Works - who’s subsidiary West Virginia American Water recently had to pay up to US$126 million in a settlement after coal-cleaning agent leaked into a river and left 30,000 people without water for nine days - and Pepsi, who can hardly be thought of as champions of human health.

How it's made:


The Fund has a two-step process to identify the investments they make: they first identify securities that they believe to be undervalued and then look at whether the issuers of those securities are conducting business in a socially responsive manner according to guidelines they have set out.


The socially responsive criteria that they have set out are as follows:

1. Do not invest in companies that have significant direct exposure to fossil fuel real assets.

2. Invest in companies with fair and reasonable employment practices.

3. Contribute to the general well-being of citizens and have respect for human rights.

4. Utilize strategies to minimize the negative impact of business activities on the environment.

5. Do not manufacture nuclear weapons or other weapons of mass destruction.

6. Do not derive more than 5% of their revenue from production or sale of tobacco products.


These criteria go a long way to explaining the disappointment in their security selection discussed in the section above. Instead of focusing on the intentionality of making a positive contribution, these criteria are mainly focused on negative impact limitation. In the first criterion, their failure to quantify a threshold for “significant” and their specification of “real assets” allows them to continue to invest in many companies that are tied to fossil fuels and/or large greenhouse gas emissions. While their no weapons of mass destruction is a welcome exclusion, it is a fairly obvious one, as is their sixth criteria. However, here too the criteria is overly soft. Fully excluding companies that generate any revenue from tobacco is usually one of the easiest decisions for an ESG fund to make, yet here the Fund still includes some tolerance for revenues generated from tobacco products.


The procedures being followed here are an example of the typical criticism that ESG investing faces – instead of setting out with the intention of maximising positive results, funds already what they want to invest in and conduct basic checks to make sure that they are avoiding only the worst negative impacts. Going forward, it would be great to see 1919 Investment focus on criteria 2,3 and in particular 4 to earn the claim of having a responsive fund.

Who makes it:


The 1919 Investment Counsel (“the Firm”) began as Scudder Stevens & Clark in 1919. It was sold to Zurich Insurance in 1997, merged with Legg Mason Trust in 2004 and eventually renamed to its current name when acquired by Stifler Corp. in 2014. The investment counsel has US$21 billion in Assets Under Management and three major funds: Maryland Tax-Free Income Trust Fund, Financial Services Fund and the Socially Responsive Balanced Fund.


The Socially Responsive Balanced Fund began in 1992 (with what are now the Class A shares) and is managed by an investment of four portfolio managers. The Firm deserve credit for the assembly of a well-balanced team with two members who have pure finance backgrounds and two members who focus more on sustainability. On the finance side, Robert Bates, with over 37 years of experience is the director of the team within the 1919 Investment Counsel and manages the equity portion of the Fund, while Aimee Eudy manages the fixed income portion of the fund and has over 32 years of experience at various financial institutions. Alison Bevilacqua is the Head of Social Research and specialises in Corporate Responsibility Research. She is also a member of the FTSE4Good US Advisory Committee and the Interfaith Centre on Corporate Responsibility. Robert Huesman is focused on the management of Socially Responsive Investment Strategies and has extensive experience as a social research analyst.


Seeing such a well-balanced team managing an ESG fund is rare and is a credit to the Firm. However, one does have to wonder about the balance within the team given the sustainability credentials of some of the investments that it has made.