The Bottom Line:  Sustainable small cap stock funds, which posted some of the strongest gains in June 2023, call for additional due diligence before investing.

Top 10 performing sustainable small cap equity mutual funds and ETFs in June 2023

Notes of Explanation:  ^ denotes index fund; TNA as of June 30, 2023 for entire fund; Start date refers to the launch of the earliest share class or the effective date upon the implementation of the fund’s sustainable investing approach in cases of fund re-brandings, noted by the letter R; Performance results to June 30, 2023.  Sources:  Morningstar Direct and Sustainable Research and Analysis LLC.

Observations:

• June, and continuing into early July, is an
  • interval that proved to be a favorable for the stock market as equities demonstrated resilience and rallied, defying the Fed’s signal that the Federal funds rate, while left unchanged at 5%-5.25% in June, may go to 5.6% by year-end if the economy and inflation do not slow down more. Major market indices, including the S&P 500, MSCI ACWI ex USA and MSCI Emerging Markets Index recorded June gains of 6.61%, 4.49% and 3.8%, respectively.
  • Against a backdrop of optimism regarding the economy’s health and cheap valuations by historical standards, small cap stocks, which lagged for much of the year-to-date time period, registered a reversal.  Small cap stocks posted some of the strongest gains in June, ranging from 7.94% for the Russell 2000 Value Index, to 8.13% for the Russell 2000 and 8.29% for Russell 2000 Growth Stock Index.  Since the end of June, the Russell 2000 has added another 3.6% on a price basis through July 21st.
  • In turn, small cap sustainable stock funds, which according to Morningstar consists of a universe of 20 mutual funds and ETFs, 43 funds/share classes in total, with $8.2 billion in assets under management that are dominated by small cap funds that pursue a blended investing approach, outperformed the average domestic sustainable stock fund in June.  Sustainable small cap funds registered an average return of 7.88% versus an average 6.23% achieved by all equity funds.  June’s ten best performing sustainable small cap funds delivered an average return of 9.25% while sustainable small cap growth-oriented funds, limited to just four funds, exceeded their level of performance with an average return of 9.34%.
  • The top ten performing sustainable small cap funds in June represent a diverse group of fund offerings.  Included are a mix of mutual funds and ETFs, actively managed funds that pursue varying fundamental investing strategies and alternative sustainable investing approaches (detailed based on prospectus filings for the top ten funds in the Funds Directory under the Resources tab), as well as passively managed funds tracking different indices, with variations in fund sizes as well as expense ratios.  In addition to these key factors, the track records of four funds are limited to less than three years due to either more recent launches or re-brandings that have occurred within the last three years.  This factor raises the bar when it comes to conducting due diligence by investors who may wish to consider any of these funds for investment purposes.