January 11, 2010
Pax World Joins With Morningstar Associates to Launch ESG Managers Portfolios
by Robert Kropp
The new series of asset allocation funds are designed for investment advisors and clients looking
for environmental, social, and governance criteria in their investments.
A series of asset allocation funds launched by Pax World and Morningstar Associates seeks to provide investment
advisors and their clients with portfolios featuring investment managers that incorporate
environmental, social, and governance (ESG) factors into their investment analysis and decision
making. The funds were launched on December 31.
The ESG Managers Portfolios consist of four funds that
incorporate a sustainable investment strategy, ranging from conservative to aggressive growth. Pax
World is the investment adviser to the funds, responsible for subadviser oversight, fund
administration and distribution. Morningstar Associates will be responsible for asset allocation,
manager selection, and portfolio construction.
Joseph Keefe, President and CEO of Pax
World, told SocialFunds.com, “Our partnership with Morningstar underscores the mainstreaming of ESG
factors into investment analysis. Sustainable investing has arrived and has become a mainstream
“While there are some SRI advisors already doing this (like FAFN,
PAM, and Veris), up until now, for 98% of advisors who were asked by their clients for a
sustainable investing strategy, they would be faced with a laborious and time-consuming process,”
Keefe continued. “Now, with this launch, advisors can provide for their clients a one-stop turnkey
process. It’s a great leap forward for the industry.”
The portfolios are managed by
investment firms that incorporate ESG factors, as well as traditional valuation methods, into their
analysis and decision-making. The 11 managers or subadvisers
selected to manage the assets in the portfolios include Pax World.
Jon Hale, Managing
Consultant of Morningstar Associates, said, “Morningstar based its research on our massive global
database, which identified 4,500 different strategies using some form of ESG analysis. Out of this
robust universe of options we identified 15 strategies from the 11 asset managers.”
underlying strategies for all the funds are the same,” Hale continued. “The aggressive growth fund
is an all-equity portfolio, while the conservative fund is 35% equities and 65% fixed income. “
“We figured that in all but the aggressive growth fund, you’re going to need some fixed
income exposure, and we wanted to take an innovative approach to that,” Hale said. “We have two
fixed income strategies that focus on bonds for community development and environmentally
sustainable activities. A third fixed income strategy applies ESG criteria to its corporate
“We think that the bond portion of the portfolios is
The fixed income securities included in the funds are managed by, among
others, Community Capital Management
and MMA Capital Management.
included among the fixed income portion of the portfolios is Pax World’s High Yield Bond
Fund, which uses a sustainable investing approach in investing up to 80% of its assets in
high-yield, fixed income securities that are rated below investment grade.
manages five investment strategies included in the portfolios. In addition to its High Yield Bond
Fund, Pax World manages the International Fund, the Multi-Cap Equity Strategy, the Real Return
Strategy, and the Global Green Fund.
According to Pax World, until now only individual
mutual funds have followed a sustainable investment strategy. The ESG Managers Portfolios are
designed to provide investment advisors with multi-manager asset allocation funds for clients
interested in sustainable, socially responsible, or green investments.
diversification of the funds is enhanced, according to Pax World and Morningstar Associates, by the
variety of approaches to sustainable investing practiced by the managers chosen for the portfolios.
Hale said, “We didn’t want to impose a uniform ESG strategy on the investment managers,
which provided an added element of diversification to the portfolios.”
Keefe spoke to the
timing of the launch, saying, “The demand for such products is fueled by a confluence of factors,
including the financial crisis, concerns about climate change, the desire of investors to align
their investment strategies with their values. In sum, what we’re seeing is a shift from an
industrial economy to a sustainable economy. Investors are beginning to see the possible returns
available in such a shift.”
Hale, who himself has many years of experience with
sustainable investing issues, added, “I went to Joe a couple of years ago and said, It’s time to do
Keefe said, “At Pax, we believe that over time, there will be significant
investment returns associated with the shift to a sustainable economy.”
“The growth of
sustainable investing will depend on our industry’s ability to roll out innovative solutions for
investment advisors and their clients,” Keefe continued. “This is the type of innovation that the
While the ESG Managers Portfolios are available to individual investors,
they can only be purchased through financial advisors.