Does Excluding Energy and Utilities Diminish Returns

Does excluding energy and utilities diminish returns for sustainable investors? At the request of the Sustainability Council at Dimensional Fund Advisors, on which Willow Creek Wealth Management is represented by its CEO Bruce Dzieza, DFA was asked to research the performance impacts of a portfolio that included no energy or utilities stocks – companies that are typically associated with higher emissions of greenhouse gasses. It should be noted that completely excluding energy and utility companies is not a strategy we were recommending for DFA’s Sustainability Funds since there are some companies within these sectors that do a better job than their peers of addressing sustainable investor concerns. We had to use available data, however, and the cleanest way to look at it, in our opinion, was a total elimination of these sectors. The results for the portfolio without energy or utilities showed similar returns and only added slightly more risk while tracking well against the overall U.S. market. For developed markets excluding the U.S., the portfolio tracked better with slightly lower returns, while emerging markets tracked well and had slightly higher returns. The bottom line is that you do not need to have stocks with potential or actual emissions of greenhouse gases to generate market returns. In full disclosure, the DFA Sustainability Funds that we use contain a small allocation to energy and utilities firms that pass the sustainability screens governing those funds. More details can be found in DFA’s whitepaper titled, “Market Returns Compared to Strategies Excluding Energy and Utilities”. For further information regarding sustainable investing, please email us at [email protected] or call at 707.829.1146.