Aspiration Redwood Fund (REDWX) Review
Is the Aspiration Redwood Fund (REDWX) really environmentally friendly and socially responsible? Read our review to find out.
SustainFi June 4, 2021
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What is the Aspiration Redwood Fund?
- Date launched: November 2015
- Assets under management: $138 million
- Fee: 0.50%
- Minimum investment: $10
Launched in November 2015, the Redwood Fund (REDWX) is an actively managed, fossil free mutual fund that invests in large-cap U.S. stocks. The fund is part of Aspiration, an innovative fintech company and neobank with social and environmental goals. Aspiration’s mission is to help customers “make money while making the world a better place.”
In addition to the Redwood Fund, Aspiration offers checking and savings accounts, a recently launched carbon-neutral credit card, and an IRA. Aspiration is the only financial institution that lets you pay what you think is right for your checking account. They also donate 10% of fees to nonprofits.
Who manages the Aspiration Redwood Fund?
Aspiration outsources the Redwood fund’s day-to-day management and stock selection UBS Asset Management, a wealth management firm.
A new team took over the fund in September 2020. The portfolio manager, Joe Elegante, has over 25 years of experience in the industry. He is also a portfolio manager for multiple sustainable equity strategies. Joe Elegante is joined by Adam Jokich, who has a quantitative analyst background.
What is the Aspiration Redwood Fund’s investment philosophy?
The fund’s investment team tries to pick attractively valued U.S. stocks with positive environmental, social, and governance (ESG) characteristics. All firearms manufacturers and energy companies are excluded. They also exclude companies that derive over 5% of revenue from alcohol, tobacco, defense, nuclear energy, GMOs, water bottles, gambling, and pornography.
What are Aspiration Redwood Fund’s Holdings?
As of May 2021, the fund had 42 holdings, mostly in technology, financial services, industrials, and healthcare stocks. Its top three holdings were Microsoft, Visa, and VMware.
|Holdings||% of Portfolio|
|Ameriprise Financial Inc||3.3%|
|Akamai Technologies Inc||3.3%|
|NXP Semiconductors NV||3.2%|
Data as of 5/30/2021
Is the Aspiration Redwood Fund green and sustainable?
- Fossil Free Funds Rating: A
- MSCI Rating: A
- Sustainalytics Rating: 5 / 5
As advertised, the Redwood Fund has zero exposure to fossil fuels and a rare A rating from Fossil Free Funds. The fund also has high ratings from ESG rating agencies Sustainalytics (part of Morningstar) and MSCI.
The Redwood Fund invests in companies with high environmental, social, and governance scores. These are not the same companies that are solving climate change, making electric cars, etc. That’s why REDWX includes stocks like Starbucks and Visa but not Tesla. We also noticed that in May 2021, Southwest Airlines was close to 3% of the fund’s assets. We weren’t quite sure why the portfolio managers included Southwest Airlines; airlines aren’t very sustainable.
Aspiration Redwood Fund fees and minimum investment
The fund’s fee – 0.50% ($50 on a $10,000 investment annually) – is reasonable for an actively managed mutual fund (though higher than for most ESG ETFs). There are no extra charges or “loads.”
Aspiration Bank pioneered the “pay what is fair” concept for their checking account, so they also let you pay more than 0.50% for the mutual fund. They don’t actually let you pay 0% because they need to cover the costs and pay the outsourced portfolio management team. So you can choose to pay up to 2.50% if you think that’s fair. However, an average mutual fund charges around 1%, and you can buy a sustainable ETF for less than 0.20%. So we would argue that 0.50% is quite fair.
The $10 minimum investment is lower than a $1,000 or $2,500 minimum many mutual funds require.
Past performance of the Aspiration Redwood Fund
The Redwood fund returned over 18% annually over the past five years, outperforming its mutual fund peers and the index, Russell 1000. However, its portfolio management team changed in September 2020, so the past track record is less relevant.
The performance under the new management team has also been good, though it’s hard to judge over such a short timeframe. In 2021 through May, the fund returned 13.7%, again beating the benchmark.
The Redwood Fund and shareholder advocacy
Actively managed mutual funds cost more than passive or index funds or exchange-traded funds (ETFs). One of the main reasons to invest in them is to have the fund reach out to companies and make them do better on ESG metrics. Green funds like Green Century can push Amazon to reduce food waste or get Kellogg to source deforestation-free palm oil. However, we haven’t found any evidence of shareholder engagement by the REDWX team. This could be because fund management is outsourced to UBS.
How do I invest in the Redwood Fund?
The Redwood Fund is available through a taxable investment account and a tax-advantaged IRA. You can only buy shares on the Aspiration website. The minimum investment is $10.
There is an annual maintenance fee of $15 if you buy shares through an IRA account.
The Redwood Fund is an OK choice, but you can pay less in fees if you invest in a sustainable ETF. Further, the fund owns few (<50) stocks and has a new management team, so we do not recommend putting all your IRA savings in it. A balanced portfolio also needs to include bonds and, for most investors, other asset classes like international equities.
Alternatives to the Aspiration Redwood Fund
If you are interested in a sustainable, fossil free mutual fund that costs less than 1%, you should also check out: