All of a Sudden, These “Socially Responsible” Funds Are Going Gangbusters
For many people, making a profit isn’t the only goal when it comes to investing. Often, ethical concerns can be as important, or even more important, than earnings and dividends. Many investors think we need to be better stewards and be socially responsible for what we invest in.
Socially responsible investing (SRI) is an investment strategy that seeks a financial return from companies deemed socially responsible in regards to both what they produce and how they conduct their business.
By investing in industries like renewable energy, clean water, healthy food, and sustainable living, or in companies that encourage equal opportunity and produce safe and useful products, it is believed investors can make both money and a positive difference in the world around them.
Over the years, ethical investing has evolved from avoiding companies associated with guns, liquor, tobacco, and gambling to being more socially responsible and investing in companies that promote environmental, health, and even political concerns.
Maybe it’s karma, but many of those who have embraced socially responsible investing have seen their portfolios grow substantially over the last four years.
The iShares MSCI USA ESG Select Index (NYSEArca/KLD) is an exchange-traded fund (ETF) that tracks U.S. large- and mid-cap stocks screened for positive environmental, social, governance, and ethical traits.
The fund has total net assets of $207.92 million and an expense ratio of 0.5%. Some of the fund’s 117 holdings include Eaton Corporation plc (NYSE/ETN), NextEra Energy, Inc. (NYSE/NEE), and Marsh & McLennan Companies, Inc. (NYSE/MMC).
The fund is up 11.6% since the beginning of the year, 22.7% over the last 12 months, and 145% since March 2009.
The iShares KLD 400 Social Index (NYSEArca/DSI) ETF is made up of U.S. large-, mid-, and small-cap stocks screened for positive environmental, social, and governance characteristics. Companies that engage in trades like alcohol, tobacco, firearms, nuclear power, military weapons, and gambling are excluded.
The fund has $218.55 million under management and an expense ratio of 0.5%. Some of the fund’s 400 holdings include Johnson & Johnson (NYSE/JNJ), International Business Machines Corporation (NYSE/IBM), and The Home Depot, Inc. (NYSE/HD).
The fund is up 16.6% year-to-date, 25.8% year-over-year, and 158.8% since March 2009.
Socially responsible investing isn’t a small niche on Wall Street anymore. Today, more than one out of every nine dollars under professional management in the United States is invested according to strategies of sustainable and responsible investing. That represents 11.3% of the $33.3 trillion in total assets under management tracked by Thomson Reuters Nelson. (Source: “2012 Report on Sustainable and Responsible Investing Trends in the US,” US SIF web site, 2012.)
According to the 2012 “Report on Sustainable and Responsible Investing Trends in the US,” socially responsible investing has evolved into a $3.75-trillion industry. Between 1995—when the first report was released—and 2012, the socially responsible asset pool has increased 486%, from $639 billion to over $3.7 trillion. During the same period of time, the broader universe of assets under professional management in the United States has grown 376%. (Source: Ibid.)
While many believe it’s better to invest in socially responsible companies than just to maximize their gains, socially responsible investing is proving to be a very profitable, lucrative option.
By directing investment capital into improving our environment and standard of living, or companies that encourage safety and equality, investors can make money while making a difference.
Even for those who do not overtly seek out socially responsible investing ideas, it can, as the evidence shows, still be an excellent opportunity to make your investment portfolio grow.