Advisor Blog

It's no secret that most of the "green" mutual funds and portfolio strategies haven't exactly been stellar performers.  Most purveyors of this type of fund seem to be better at evaluating the environmental stewardship of companies that than they are at building a portfolio with a high expected rate of return.  Beyond that, the typical "green" fund is not designed to be effectively diversified across asset classes or to avoid sector concentration, so it may take more risk than is necessary.  If you're looking for a choice in this area that actually has a value strategy, good luck.

As usual, Dimensional Fund Advisors (DFA) has a better solution. 

In 2008, Dimensional launched the US Sustainability Core 1 and International Sustainability Core 1 portfolios. These funds enable investors to advance their environmental values while holding a broadly diversified portfolio with a rigorous focus on multifactor investment design.

Dimensional's sustainability strategy combines the benefits of their well known core equity approach with a sustainability overlay that applies a research-based environmental screen to the asset allocation. The strategy takes the initial weightings of the US Core Equity 1 Portfolio or the International Core Equity Portfolio, which feature marketwide diversification and higher exposure to small cap and value companies, then adjusts the weighting of each stock according to its sustainability score. The stocks of companies with high (favorable) scores receive larger portfolio weights, while stocks with low scores are underweighted or eliminated.

As a result, these portfolios offer the diversification, factor exposures, and cost advantages found in Dimensional's core equity approach-but with a data-driven overlay that commits higher relative weights to companies that demonstrate a stronger environmental commitment. The rating process, which is maintained by Sustainable Holdings, is superior to traditional screening approaches because it sorts companies by industry and applies gradual weighting to improve sustainability targeting and preserve core strategy characteristics.

If environmental sustainability is important to you, but you want to hold a properly structured portfolio, discuss it with us.  We can show you how the DFA sustainability portfolios can be integrated with your overall investment strategy, or help you create one.