Is Parnassus the Best ESG Fund Manager? (Review)
Parnassus Investments is the largest sustainable fund manager in the U.S. We’ve dug into their five funds. Learn how sustainable they really are.
SustainFi June 17, 2021
Some of our posts may contain links from our affiliate partners. However, this does not influence our opinions or ratings. Please read our Terms and Conditions for more info.
What is Parnassus Investments?
- Founded: 1984
- Assets under management: $41 billion (as of June 2020)
- Minimum Investment: $2,000
Founded in 1984 in San Francisco, Parnassus is the largest pure-play ESG fund manager with over $41 billion in assets. Its Core Equity Fund (PRBLX) is the largest ESG mutual fund with over $27 billion under management. That fund has beaten the S&P 500 since its launch in 1992. The firm is independent and employee-owned.
Jerome Dodson started Parnassus in 1984 with $300,000 he raised from family and friends, seeking to invest in companies that treated the environment and their workers well.
Today Parnassus offers five ESG funds, including four equity funds and a bond fund. All Parnassus funds exclude fossil fuel companies. In addition to analyzing ESG criteria, Parnassus investment professionals work with companies and vote on shareholder resolutions.
The founder, Jerome Dodson, retired from actively managing money for the firm in late 2020. He handed over the reins to the rest of his team.
Parnassus Investment Philosophy
Parnassus seeks to invest in companies that build wealth for their clients while positively impacting society. They are active fund managers who evaluate companies through both ESG and fundamental analysis lenses.
Parnassus begins with its ESG evaluation and uses the following five factors when selecting companies for their funds:
In addition to the ESG evaluation, Parnassus uses fundamental analysis. They look at a company’s moat (strategic advantage), management team, market relevancy, and valuation. Parnassus wants companies with a sustainable strategic advantage, a relevant product or service, and thoughtful leadership, but at an affordable price. Valuation is the reason Parnassus has avoided investing in clean energy stocks, despite their positive impact on the planet.
In 2019, Parnassus chose to divest from fossil fuels in all its funds. Three of their equity funds have rare A ratings from Fossil Free Funds, though the Parnassus Mid Cap Fund continues to own some fossil fuel-powered utility stocks (it is debatable whether divestment should include utilities or not.)
Featured Investing Products
Parnassus’ Five Funds
💰 Top Pick
We would pick the Parnassus Core Equity Fund, which has strong ESG ratings, shuns fossil fuels, and has a history of beating the S&P 500 under the current portfolio management team.
|Fund||Ticker||Expense Ratio||Assets ($m)||Inception Date||Fossil Free Funds Rating||MSCI Rating||Sustainalytics Rating|
|Parnassus Core Equity Fund||PRBLX||0.84%||27,611||1992||A||A||5 / 5|
|Parnassus Mid Cap Fund||PARMX||0.98%||7,875||2005||C||A||5 / 5|
|Parnassus Endeavor Fund||PARWX||0.94%||4,711||2005||A||AA||5 / 5|
|Parnassus Mid Cap Growth Fund||PARNX||0.83%||1,103||1984||A||BBB||5 / 5|
|Parnassus Fixed Income Fund||PRFIX||0.68%||436||1992||NR||NR||NR|
Parnassus Core Equity Fund (PRBLX)
- Expense Ratio (Retail Shares): 0.84%
Launched in 1992, PRBLX is the largest ESG fund in the U.S., with over $27 billion in assets. Like all Parnassus Funds, PRBLX is actively managed, meaning that portfolio managers pick stocks and try to beat the market. The fund invests in a small number of large-cap U.S. stocks, seeking high-quality companies with pricing power. Many controversial sectors, such as alcohol, tobacco, weapons, and fossil fuels, are excluded.
PRBLX has top ratings from Fossil Free Funds (A) and ESG rating agencies MSCI and Sustainalytics (5/5).
Although the fund charges a high, 0.84% fee, PRBLX has beaten the S&P by over 1% since its inception in 1992 and more recently. It returned over 21% in 2020 vs. 18.4% for S&P 500.
The fund is co-managed by Todd Ahlsten and Benjamin Allen. Alhsten has been at Parnassus for over 25 years. He likes entrenched businesses with moats and recurring revenues, such as Microsoft, the fund’s top holding. As an ESG investor, Ahlsten also looks for good corporate citizens. Co-manager Benjamin Allen has been with Parnassus for over 15 years.
PRBLX is our favorite fund in the Parnassus line-up. Given the size of the fund, other investors clearly agree. You can read an in-depth review here.
Parnassus Mid-Cap Fund (PARMX)
- Expense Ratio (Retail Shares): 0.98%
Launched in 2005, PARMX invests in mid-cap companies with long-term competitive advantages and positive performance on ESG criteria. Companies involved in alcohol, tobacco, weapons, fossil fuels, nuclear power, or gambling are screened out. The fund is similar to the Core Equity fund, except that it focuses on mid-cap stocks.
PARMX owns 48 stocks, a lot of them in tech. As of May 31, 2021, its top three holdings are waste disposal business Republic Services (RSG), medical technology company Hologic Inc (HOLX), and location-based tech provider Trimble Inc (TRMB).
Although Parnassus doesn’t officially invest in fossil fuels, Fossil Free Funds gave PARMX a C rating because it owns several electric utilities. In contrast, PARMX got A and 5 / 5 scores from ESG rating providers MSCI and Sustainalytics.
The fund charges a 0.98% fee to retail investors, but performance has been a touch lower than its benchmark, the Russell Mid-Cap Index, since the current fund managers took over in 2008. PARMX is managed by Matthew Gershuny and Lori Keith, who started at Parnassus as an intern in 1991.
We like PARMX less than the Parnassus Core Equity Fund. The fund charges high fees for active management, but it has not been able to beat the benchmark. The fund also invests in fossil fuel-powered utilities (which may or may not be an issue for you.)
Parnassus Endeavor Fund (PARWX)
- Expense Ratio (Retail Shares): 0.94%
Like the Core Equity Fund (PRBLX), the Endeavor Fund (PARWX) invests in large-cap U.S. companies. Its sweet spot has been discounted stocks of quality companies. It also seeks companies with positive workplaces and avoids fossil fuels.
At the time of this review, PARWX had 40 large-cap holdings, of which the top ten were around one-third of the fund’s assets. The top three holdings were brokerage Charles Schwab (SCHW), semiconductor manufacturer Intel Corp (INTC), and retailer The Gap Inc (GPS). The fund has top ratings from Fossil Free Funds, MSCI, and Sustainalytics.
The Endeavor Fund charges a high fee (0.94%), but it has outperformed the S&P by over 2% over the past ten years and 3% since its inception. However, PARWX is now managed by Billy Hwan, who took over when Parnassus founder, Jerome Dodson, stepped away at the end of 2020. Dodson described Hwan as “a very sober, very careful” investor.
Although Hwan helped Dodson manage the fund in the past, he has a relatively short independent track record running the Parnassus Asia fund. Nonetheless, the Endeavor fund has done extremely well in early 2021, returning over 26% through June (vs. 12% for S&P 500).
The Endeavor Fund has had a great run, but the fund’s long-time manager and Parnassus founder, Jerome Dodson, stepped away in late 2020. We would hold off until the new portfolio manager, Billy Hwan, develops his own track record.
Parnassus Mid-Cap Growth Fund (PARNX)
- Expense Ratio (Retail Shares): 0.83%
PARNX was the first fund launched by Parnassus in 1984, though it shifted its strategy in 2020 to focus on mid-cap stocks with growth potential. Like other Parnassus funds, PARNX shuns fossil fuels, tobacco, alcohol, and other controversial sectors.
The fund managers pick 40-50 stocks. As of June 2021, the top three holdings were scientific solutions provider Agilent Technologies (A), off-price retailer Burlington Stores (BURL), and veterinary diagnostics company IDEXX Labs (IDXX).
PARNX has top ratings from Fossil Free Funds (A) and Sustainalytics (5/5), though it lags according to MSCI (BBB rating).
The fund charges a 0.83% fee, but performance has lagged for most of the time periods we reviewed. Over the past five years, the fund delivered nearly 4% less than its benchmark, and year-to-date, through June 2021, performance was nearly 2% lower.
The fund is co-managed by Robert Klaber and Ian Sexsmith, who joined Parnassus in 2011 and 2012. Sexsmith has been managing PARNX since 2013, and Klaber joined him in 2016.
We prefer the Core Equity Fund (PRBLX) to this PARNX. The Mid-Cap Growth Fund has lagged the benchmark, and it also has a lower ESG rating from MSCI.
Parnassus Fixed Income Fund (PRFIX)
- Expense Ratio (Retail Shares): 0.68%
- Yield: 1.21%
Launched in 1992, PRFIX is an actively managed, sustainable bond fund. The fund invests in high-quality, investment grade bonds of businesses with strong ESG characteristics.
As of June 2021, the fund invested in 150 bonds, including bonds of high-quality U.S. companies such as International Finance Corp, O’Reilly Automotive Inc., and Teleflex Inc.
PRFIX has an expense ratio of 0.68% and has returned an annualized 4.88% since inception, slightly less than its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index. In fact, PRFIX has underperformed its benchmark over the 1, 3, 5, and 10-year periods. In 2020, PRFIX returned 7.91% vs. 7.51% for its benchmark.
PRFIX is co-managed by Samantha Palm and Minh Bui. Palm joined Parnassus in 2013 after she was a Vice President in Wells Fargo Securities’ fixed income group, and Bui joined Parnassus in 2005 after working as a research intern.
Parnassus’ equity offerings have generally been stronger than its bond offering. This bond fund is actively managed, but it has lagged the benchmark since inception. We believe that ESG funds should be beating their benchmark, and you shouldn’t have to sacrifice returns to invest sustainably.
Parnassus fees and minimum investment
For Retail Shares (that you can buy on your own through your brokerage account), Parnassus’ fund fees range from 0.68% to 0.98%. There is a minimum investment of $2,000 for all funds.
Parnassus’ fees are competitive with actively managed mutual funds, which charge 1% on average, but more expensive than many ETFs.
That said, Parnassus has shown its ability to provide above-average returns (primarily driven by its Core Equity and Endeavor funds) while using shareholder engagement to create a more sustainable future.
Parnassus and shareholder advocacy
Parnassus encourages positive change in the companies they invest in through shareholder engagement. They disclose how they voted on key shareholder issues and pressure companies to do better on sustainability.
For example, since 2013, Parnassus and other investors have pressured Mondelez, the owner of consumer snack brands like Oreo and Ritz, to adopt zero-waste packaging. In 2018, Mondelez finally agreed to sourcing sustainable packaging and making all its packaging recyclable.
How can you invest in Parnassus funds?
You can invest in Parnassus funds through most major brokerages like Fidelity, Charles Schwab, and Vanguard. As a retail investor, you need a $2,000 minimum investment to get started and a $50 minimum subsequent investment. Many brokers now let you invest without paying any transaction fees.