Socially responsible funds that do the vetting for you.
Wall Street isn’t typically associated with morality, but that doesn’t mean investing has to be void of a conscience. In fact, socially responsible investing is on the rise, and a number of exchange-traded funds aiming to track ethically sound companies have popped up in the last year. While the focus of these funds varies from name to name, they generally avoid “sin stocks” in areas like big tobacco and alcohol, as well as the weapons industry. Funds are a great way to invest around themes, and while every socially conscious investor should do legwork of their own, the following seven funds are a good place to start looking.
SPDR SSGA Gender Diversity Index ETF (ticker: SHE)
Freshly launched in March, State Street Global’s Gender Diversity Index ETF, aptly given the ticker SHE, seeks to track the performance of an index of companies “that are leaders in advancing women through gender diversity on their boards of directors and in management.” The fund is well diversified with 186 positions to its name, and its top 10 holdings account for about 36 percent of the portfolio. Among the heaviest-weighted stocks are Pfizer (PFE), PepsiCo (PEP), Amgen (AMGN), 3M Co. (MMM), CVS Health Corp. (CVS), MasterCard (MA) and Starbucks Corp. (SBUX). All of these companies have multiple women on their respective boards, including Pepsi, which is led by chairwoman and CEO Indra Nooyi.
iShares MSCI KLD 400 Social ETF (DSI)
This socially responsible ETF tracks an index of companies that have “positive environmental, social and governance characteristics.” It’s been around longer than SHE — the fund began in 2006 — and it’s plenty diversified, boasting more than 400 holdings. That said, more than a quarter of the portfolio is in the information technology sector, so if you’re worried about overexposure there, this fund might not be for you. Investing mostly in large and mega-capitalization companies, some of DSI’s biggest holdings are Microsoft Corp. (MSFT), Alphabet (GOOG, GOOGL), Procter & Gamble Co. (PG) and Verizon Communications (VZ). Alphabet’s mantra alone, “Don’t be evil,” might have earned it a spot.
iShares MSCI USA ESG Select ETF (KLD)
KLD also screens out companies seen as ethically or morally questionable, notably excluding tobacco from its holdings. There’s some overlap with DSI as far as holdings go (there are only so many angelic public companies out there!), but stocks with lower profiles also manage to crack the top 10. Specifically, top holdings like Ecolab (ECL), Accenture (ACN), Henry Schein (HSIC) and Kellogg Co. (K) show that KLD is keeping an open mind and not following the herd. This philosophy has paid off for long-term investors, who in the past 10 years through June 30 enjoyed returns of nearly 89 percent versus the Standard & Poor’s 500 index’s 69 percent returns over the same period.
iShares MSCI ACWI Low Carbon Target ETF (CRBN)
For investors who want to put their hard-earned dollars behind companies that care about the environment, the CRBN ETF is a good way to do just that. Ironically, this fund, which has nearly 1,200 equity positions in the U.S. and abroad, doesn’t list diversity as an investment objective. This low-cost fund (the expense ratio is a mere 20 basis points) doesn’t claim to invest in companies with no carbon footprint, just companies with “lower carbon exposure than that of the broad market. Its three largest holdings are Apple (AAPL), Microsoft and Johnson & Johnson (JNJ), though collectively they make up less than 4 percent of the entire portfolio.
SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)
SPYX is a relative newcomer to the ETF industry; its inception date was less than a year ago, in November 2015. Its goal is certainly interesting, though: SPYX aims to replicate the returns of the S&P 500, minus those companies that hold fossil fuel reserves. “Fossil fuel reserves are defined as economically and technically recoverable sources of crude oil, natural gas and thermal coal but do not include metallurgical or coking coal, which are used in connection with steel production,” according to the fund’s prospectus. Although long-term performance isn’t yet available, 2016 returns through the end of July amounted to 7 percent, modestly better than the S&P’s 6.3 percent return.
Portfolio 21 Global Equity Fund Class R (PORTX)
PORTX is the first mutual fund on this list, and perhaps the starkest difference between it and the previous entries is the expense ratio, which sits at a fairly high 1.4 percent. The fund is run by Trillium Asset Management, which claims to be the “oldest investment advisor exclusively focused on sustainable and responsible investing.” Since Portfolio 21 is a global fund, foreign equities find a prominent place in the portfolio. Companies that pay no heed to environmental, social and governance issues though? No thanks. PORTX won’t invest in any company with direct interest in fossil fuel exploration or production, the weapons industry or controversial labor policies.
TIAA-CREF Social Choice Equity Fund (TICRX)
TICRX seeks to replicate the performance of the Russell 3000 index, sans the companies that don’t live up to its environmental, social and governance standards. This mutual fund is easily the largest of these seven options by assets under management, with $2.8 billion to its name. A minimum investment of $2,500 is required for retail investors to buy into this one, which levies a 44-basis-point expense ratio. Factoring in climate change, natural resource use, human capital, business ethics and corporate governance, TICRX carefully navigates the investment landscape. Aside from shunning the usual culprits (tobacco, alcohol, weapons, etc.), TICRX also thumbs its nose at gambling and nuclear power investments.
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7 of the Best Socially Responsible Funds originally appeared on usnews.com
