With what seems like a never-ending flow of new Exchange Traded Fund options for investors to dump money into, one of the more popular, besides indexing, themes are the ‘socially responsible’ exchange traded funds. These funds focus on companies which are seen to be socially responsible. That could and often does mean many things, but for the most part, it represents companies which rate high on environmental, social, and corporate governance scales.
Firm meeting the environmental, social, and governance (ESG) criteria are also believed to have higher rates of return for investors because these companies are less likely to deal with government-imposed fines or just plain old bad publicity. But socially responsible ETF investing just doesn’t end with the ESG firms; it often excludes all companies that fall into the ‘sin stock’ categories. These would include, alcohol, tobacco, gambling, adult entertainment, weapons, and obviously now the marijuana companies. One ETF, which we will get to in just a moment even goes as far as focusing on companies which employ women in high-level leadership positions.
So, before you decide that socially responsible is just for ‘tree huggers’ and isn’t for you, take a look at a few of the ETFs I have highlighted below, and maybe one of them will strike a chord with you.
The first ETF on my list is the iShares MSCI KLD 400 Social ETF (DSI) which is one of the oldest ESG ETFs with an inception date of November 4th, 2006. Due to its long history, it is also one of the largest ESG funds with $1.4 billion in assets under management. However, DSI is in the middle of the range in terms of costs, as the fund carries an expense ratio of 0.25%. DSI tracks a market-cap-weighted index of 400 companies which are considered to have the highest positive environmental, social, and governance characteristics by MSCI. With that being said, Facebook (FB) is the second largest holding in the fund and with the companies ‘data’ scandals in its recent past, some would say the fund has too many holdings which don’t fully represent ‘true’ ESG principles. And because the fund is market-cap weighted, its top ten holdings represent 27% of the fund. So, with all that being said, DSI is an ESG fund, but not for the die-hards. So, if you on the fence about ESG investing, this is a good option to consider. Continue reading "Socially Responsible ETFs May Focus On More Than You Thought"