Please ensure Javascript is enabled for purposes of website accessibility

T. Rowe offering will allow clients to invest in social equity fund

T. Rowe Price officials say the demand for social impact investing choices is likely to grow. (The Daily Record/ File Photo)

T. Rowe Price officials say the demand for social impact investing choices is likely to grow. (The Daily Record/ File Photo)

T. Rowe Price Wednesday announced the launch of the company’s first “impact fund,” a type of mutual fund that is growing in popularity by aiming to simultaneously return financial gains for clients and allow clients to support environmental and social change.

Called The T. Rowe Price Global Impact Equity Fund, it will include a portfolio of between 55 to 85 stocks in companies that have had positive impacts on social or environmental issues within three central pillars: climate and resource impact, social equity and quality of life, and sustainable innovation and productivity.

Key focal points within those categories include reducing greenhouse gas emissions, promoting healthy ecosystems, increasing access to high-quality quality health care, and building sustainable industry and infrastructure. T. Rowe has been studying and tracking social and environmental metrics since 2014 and began building its in-house responsible investing team in 2017, said Ed Giltenan, a spokesman for the company.

The firm’s responsible investing database currently spans more than 15,000 securities worldwide, allowing analysts and portfolio managers easy access to information about companies’ impacts. That resource, as well as T. Rowe’s Environmental, Social and Governance experts and responsible investing research analysts, will be used to inform the Global Impact Equity Fund.

As with any product, T. Rowe wanted to ensure that there was long-term demand for the impact fund, and that managers could be confident in their ability to manage the fund well and produce attractive returns for their clients before launching it, Giltenan said.

“I think, especially over the last five years, it’s become more and more clear that the whole field of impact investing, social investing … more and more people want to do it,” he said. “We believe the demand for it will continue to grow in future years, and we think every company, every corporation, every investment … is going to be impacted by these issues.”

The fund will be managed by Hari Balkrishna, who has worked at T. Rowe for the past decade and held the role of associate portfolio manager of the firm’s Global Growth Equity Strategy from 2015 to 2020.

“The world and financial markets have reached a turning point with respect to addressing the health of our planet and the widespread inequality that continues to plague society at large. Increasingly, global investors want to invest not just in accordance with their wallets but with their values,” Balkrishna said in a news release.

The impact fund is distinct from T. Rowe’s “responsible funds,” which are funds that exclude companies and industries some regard as unethical, such as tobacco, fossil fuels, for-profit prisons and gaming; the Global Impact Equity Fund will also exclude these companies.

The net expense ratio for the investor class shares of the Global Impact Equity Fund is 0.94% and the minimum initial investment is $2,500. The net expense ratio for the I class shares is 0.79% and the minimum initial investment is $1 million.

Karyl Leggio, a professor of finance at Loyola University Maryland, said that there are a few concerns related to investing in impact funds but that the benefits of contributing to positive social and environmental change outweigh these potential downsides.

The cost of investing in an impact fund, for example, is typically higher than the costs of most other mutual funds.

This is because, Leggio said, “you’re paying for the work of the portfolio manager … it takes a lot of effort to make sure you have the right companies included in the fund.”

“At the end of the day, the cost of the (impact) fund and whether it is justified can be borne out in its performance.  Like our other funds, this one aims to outperform its index benchmark net of fees,” Giltenan said, adding that T. Rowe has been recognized both for offering reasonable prices that are relative to market and competitor funds and for reducing the costs of funds as their assets grow.

Another concern is the diversification of an impact fund portfolio, which is typically not as high as that of other mutual funds, Leggio said. But for most investors, an impact fund wouldn’t be their only investment, allowing them to receive diversification from other investments.

Additionally, Leggio considers The Global Impact Equity Fund well diversified due to its larger-than-average portfolio of at least 55 stocks — 30 would be considered a “nicely diversified” portfolio, she said.

Despite these minor concerns, Leggio commended the new fund.

“It doesn’t surprise me that T. Rowe is getting into this,” she said, referencing the company’s extensive history of tracking and researching companies’ environmental and social impact. “But I’m pleased to see it.”

 


To purchase a reprint of this article, contact [email protected].