4 Socially Responsible ETFs Your Broker Forgot to Mention
Socially responsible investing can be a risky gambit. Leaving out so-called sin stocks from a portfolio means excluding purveyors of alcohol and tobacco, along with casino operators and defense companies. Go a step further and truly socially responsible could possibly exclude fast-food chains and oil companies.
That leaves out a broad swath of major S&P 500 companies, not to mention the exclusion of tobacco, oil and some restaurant stocks means missing out on some of the most reliable dividends on Wall Street.
So is there anything to socially responsible investing? Maybe. Maybe not. One of the larger socially responsible ETFs has slightly outperformed the S&P 500 year-to-date. On the other hand, the Guggenheim Solar ETF (NYSE: TAN), arguably a socially responsible sector play, has been one of this year's worst performing sector ETFs with a drop of about 65%.
Still, there just might be something for socially responsible investors to look forward to in 2012 and with that, we offer up four socially responsible ETFs your broker forgot to mention.
iShares MSCI USA ESG Select Index Fund (NYSE: KLD): With almost $159 million in assets under management, the iShares MSCI USA ESG Select Index Fund is one of the big kahunas of the socially responsible ETF universe, however small it may be. We noted the ETF's energy exposure borders on not all that socially responsible. Nike (NYSE: NKE) and Apple (Nasdaq: AAPL) are also featured in this ETF and they've had some issues in the past with factory workers in the emerging markets. Not to mention, the almost 12% weight to financials is borderline irresponsible these days.
iShares KLD 400 Social Index Fund (NYSE: DSI): The iShares KLD 400 Social Index Fund has offered slight outperformance compared to KLD this year and that might be because of DSI's lower exposure to financials. Both ETF's have fees of 0.5%, but DSI has $146.3 million in AUM with almost 400 holdings, far more than what KLD has. DSI also has a significantly lower weight to oil stocks, so this one is arguably more socially responsible than its iShares cousin.
Pax MSCI EAFE ESG Index ETF (NYSE: EAPS): The Pax MSCI EAFE ESG Index ETF, with over $4 million in AUM, is a pure play international socially responsible fund and we'll give this thinly traded ETF for doing what it says it's going to do. Two quibbles though: The 24.1% weight to financials is far too excessive for this environment. An allocation of almost 23% to several Euro Zone countries, including some PIIGS, is far too excessive for this environment.
Pax MSCI North America ESG Index ETF (NYSE: NASI): The Pax MSCI North America ESG Index ETF is basically the North American equivalent of EAPS. Like DSI, NASI has almost 400 holdings and the Pax offering features a lineup that is very similar to KLD and DSI. Think Procter & Gamble (NYSE: PG), Google (Nasdaq: GOOG), IBM (NYSE: IBM) and McDonald's (NYSE: MCD). Like DSI, NASI has an expense ratio of 0.5%, so we're basically splitting hairs here, but the iShares offering has superior volume.
Traders who believe that socially responsible investing will work, might want to consider the following trades:
- Long Procter & Gamble as the stock could easily outperform the ETFs mentioned here and is one of the most reliable dividend payers out there.
- Long tech stocks or ETFs as that sector is among the most socially responsible.
- Long beaten alternative energy ETFs such as TAN or wind energy plays.
Traders who believe that socially responsible investing will falter may consider alternative positions:
- Long oil ETFs, either the ones with futures exposure or the one tracking oil stocks. It may be mean, but oil trumps solar more often than not.
- Short TAN. If that ETF breaks support at $2.25, it's in big trouble.
- Long the Market Vectors Gaming ETF (NYSE: BJK)
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