Parnassus Core Equity Fund (PRBLX) Review
The Parnassus Core Equity Fund (PRBLX) is the largest environmental, social, and governance (ESG) fund in the U.S. But is it the most sustainable one? Read our review to find out.
SustainFi July 1, 2021
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What is the Parnassus Core Equity Fund?
- Date launched: August 1992
- Assets under management: $27.6 billion
- Fee: 0.84%
- Minimum investment: $2,000
- Year-to-date performance (though June 30, 2021): 15%
Launched in 1992, the Parnassus Core Equity Fund (PRBLX) is the largest sustainable 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, long-term competitive advantages, excellent management teams, and positive performance on ESG criteria.
Many controversial sectors, such as alcohol, tobacco, weapons, and fossil fuels, are excluded. The fund is fossil fuel free because it does not invest in companies that generate most of their revenues from extracting, exploring, producing, or refining oil, gas, or coal.
Who manages the Parnassus Core Equity Fund?
The Core Equity Fund is part of the Parnassus family of funds. Founded in 1984 in San Francisco, Parnassus is the largest pure-play ESG fund manager with over $41 billion in assets. The $27 billion Core Equity Fund is by far Parnassus’ largest mutual fund. Parnassus is independent and employee-owned. Their mission is to invest in companies that build wealth for clients while also positively impacting society.
Jerome Dodson established Parnassus after borrowing $300,000 from family and friends with the premise that excluding stocks in sectors like tobacco and alcohol would outperform the market. Today, Parnassus offers five ESG funds, including four equity funds and a bond fund. All Parnassus funds exclude fossil fuel companies.
Parnassus investment professionals work with companies and vote on shareholder resolutions. For example, the managers may ask companies to use recycled packaging materials.
Most Parnassus funds cost around 1%.
The Core Equity Fund’s managers include Todd Ahlsten, who took over sole management of the fund in 2002 after co-managing with Dodson for a year. He has 25 years of industry experience. His co-manager Benjamin Allen joined the fund in 2012 and has 22 years of industry experience. A staff of 13 people, including three ESG specialists, support the managers.
What is the Parnassus Core Equity Fund’s investment philosophy?
The fund managers incorporate ESG research when they pick stocks. They also screen out companies involved in alcohol, tobacco, and guns, along with casinos and other gaming companies. The fund is fossil fuel free and will not purchase utilities that generate electricity from nuclear power.
PRBLX is primarily a large-cap fund – the average market cap of a stock the fund owns is $363 billion. The fund invests in U.S. companies that are financially sound and have good prospects. The managers want to own high-quality companies with long-term competitive advantages that can perform better than the market during downturns. They are willing to pay a higher price if a company deserves it. Some of their favorite holdings are Google (GOOGL) and Microsoft (MSFT).
Even though the managers primarily evaluate a company based on its merit, they favor a few sectors. The largest sector by far is technology, then industrials, communication services, and financials.
What are Parnassus Core Equity Fund’s Holdings?
PRBLX typically owns around 40 stocks. As of May 31, 2021, the fund had 39 holdings, mostly in technology, industrials, communication services, and financials. Its top three holdings were Microsoft (MSFT), Google (GOOGL), and financial derivatives exchange CME Group (CME).
|Holdings||% of Portfolio|
|Deere & Co||3.4%|
Data as of 5/30/2021
Is the Parnassus Equity Fund really sustainable?
- Fossil Free Funds Rating: A
- MSCI Rating: A
- Sustainalytics Rating: 5 / 5
The Parnassus Core Equity Fund has no 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 fund invests in companies with high environmental, social, and governance scores.
However, as of May 2021, the portfolio included Southwest Airlines (LUV). You could argue that it isn’t the most environmentally friendly investment.
Parnassus Core Equity Fund fees and minimum investment
The fund’s fee – 0.84% ($84 on a $10,000 investment annually) – is average for an actively managed mutual fund (though higher than for most ESG exchange-traded funds, which charge around 0.20% on average.) There are no extra charges or “loads.” The minimum investment is $2,000, but there is a $50 minimum after that.
Past performance of the Parnassus Core Equity Fund
Although past performance doesn’t guarantee future performance, the fund’s performance has been exceptional.
The Parnassus Core Equity Fund outperformed its index, the S&P 500, and its peers annually for the one-year, three-year, five-year, and ten-year periods, all despite charging a 0.84% fee.
Source: Parnassus. Assumes a 0.84% management fee.
Parnassus and shareholder advocacy
Actively managed mutual funds typically 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 convince them to improve ESG metrics and practices.
As an example of shareholder advocacy, Parnassus helped improve the sustainability practices at Mondelez (MDLZ), the owner of snack brands Oreo and Ritz. In 2018, after five years of pressure from investors and the broader community, Mondelez finally consented to zero-waste packaging for its products.
How do I invest in the Parnassus Core Equity Fund?
You can buy Parnassus funds through a taxable investment account or a tax-advantaged IRA through the Parnassus website. You can also buy Parnassus funds through a regular brokerage account. The minimum investment is $2,000.
The Core Equity Fund is an excellent choice for both fund performance and ESG ratings, but you can pay less in fees if you invest in a sustainable ETF. The fund has an impressive performance record when compared to the S&P 500 and its mutual fund peers. It also plays an important role in convincing companies in its portfolio to improve their ESG practices and become “greener.”
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Alternatives to the Parnassus Core Equity Fund
If you are interested in a sustainable, fossil-free mutual fund that costs less than 1%, you should also check out:
- Aspiration Redwood Fund (REDWX) for an actively managed fund
- Vanguard FTSE Social Index Fund (VFTAX) for a cheap index fund