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A Guilt-Free Fund With a Silver Streak

Tue, 20 May 2014

This socially responsible portfolio has delivered 5-star performance with below-average expenses and is one of the lowest-risk names in its category.

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Video Transcript

Laura Lallos: Parnassus Core Equity has earned a Morningstar Analyst Rating of Silver. Parnassus is a socially responsible investing shop. One thing that managers Todd Ahlsten and Ben Allen are looking for are companies that score well on ESG screens, or environmental, social, and governance screens.

They want companies that have great environmental records and that treat employees well. They contend these are companies that are going to outperform. There aren't going to be unpleasant surprises coming from companies that do well on their screens. That's just a first step.

On top of that, Ahlsten and Allen are looking for companies with wide moats and strong products or services that are in high demand. And they do want to buy when the companies are undervalued, and then they'll hold. This is one of the lower-turnover funds in the large-blend category. It's a very decisive portfolio with 40 names. Usually the managers are not concerned about looking like the S&P 500. For example, the fund has had almost nothing in financials; Ahlsten and Allen just see better risk/reward opportunities elsewhere.

This has added up over the past 10 years, and Ahlsten has been lead manager over that time, to one of the top performers in large-blend category. It's in the top percentile, and it comes with low risk. This is also one of the lowest-risk funds in the category. The managers contend that's partly due to their ESG screens. It's also due to the fact that the fund keeps 75% of assets in dividend-paying stocks--that mutes volatility--and to the fact that the managers are careful of valuations. That's added up to low risk over time.

On top of that, the fund has below-average expenses. That's the final bit. That gives us confidence that this fund is likely to continue to outperform going forward.

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