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Sustainability Matters

Finding Sustainable Small- and Mid-Cap Funds

5-globe small- and mid-cap funds are less risky and hold stocks of larger, higher-quality companies.

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When it comes to building a portfolio of sustainable funds, your small- and mid-cap allocations can be hard to fill. Only a few small- and mid-cap funds have intentional sustainable investment mandates, and, as with any handful of funds you may consider, not all of them have overall records that recommend them. Now that our Morningstar Sustainability Rating can be applied to more small- and mid-cap funds, there is a wider array of funds to consider for a sustainable funds portfolio. If you don’t find an intentional sustainable fund that is appropriate, you can use a conventional fund with a Morningstar Sustainability Rating of 5 globes, reflecting the fact that it holds stocks of companies that are stronger sustainability performers.

In addition to holding companies that are doing better at addressing sustainability issues relevant to their businesses, the typical small- or mid-cap fund with a 5-globe Morningstar Sustainability Rating, intentional or not, has certain other style characteristics. Such funds exhibit lower volatility and invest in higher-quality companies and larger companies compared with funds that score low on sustainability.

Jon Hale does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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