Socially responsible mutual funds and ETFs are on the rise as the consumer market grows increasingly interested in ethical consumption. Investors want to reward corporations that responsibly manufacture their products and treat employees well.
Socially responsible mutual funds and ETFs invest in companies that follow predetermined ethical standards. Fund managers examine one or more aspects of how a corporation runs its business or creates its products and hand-select stocks and investments that adhere to the values and beliefs of the fund.
What is considered ethical can vary by culture, region or religion, so fund managers value a sense of complete transparency when it comes to attracting investors. Making these funds a part of your retirement plan can bring you peace of mind, supplement your Social Security benefits, secure your retirement income and bolster your brokerage account.
6 Best Socially Responsible Mutual Funds and ETFs
Below are some socially responsible mutual funds and exchange-traded funds (ETFs) that might align with your values and investment goals.
- iShares MSCI KLD 400 Social ETF (NYSEARCA: DSI)
- SPDR S&P 500 Fossil Fuel Reserves Free ETF (NYSEARCA: SPYX)
- Vanguard FTSE Social Index (MUTF: VFTSX)
- SPDR SSGA Gender Diversity Index (MUTF: SHE)
- Eventide Gilead Fund (MUTF: ETGLX)
- TIAA-CREF Social Choice Bond Fund (MUTF: TSBIX)
1. iShares MSCI KLD 400 Social ETF (DSI)
This ETF rewards information and technology corporations who promote “positive environmental, social and governance changes.” The iShares MSCI KLD 400 Social ETF places its holdings mostly in large-cap tech companies like Microsoft, Facebook and Alphabet (parent company of Google).
Want to invest in big tech with a lower expense ratio (0.25%) but feeling wary about news stories of human rights violations? This may be the right ETF for you.
2. SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)
SPDR S&P 500 Fossil Fuel Reserves Free ETF launched in December 2015. Its goal is ambitious — to replicate the performance of the S&P 500 while excluding companies that hold reserves of fossil fuels. It maintains holdings in over 400 corporations and has an expense ratio of 0.25%.
It can be a good fit for investors who want to encourage and promote the development of alternative energy sources. The SPDR S&P 500 Fossil Fuel Reserves Free ETF offers a replacement for investors seeking the safety of a reliable index fund while also maintaining higher environmental standards.
3. Vanguard FTSE Social Index (VFTNX)
Founded in 2000, the Vanguard FTSE Social Index is an offering from longtime financial institution Vanguard that focuses on large- and mid-cap offerings that meet certain employee and environmental standards.
It has an expense ratio of 0.18%, and it could be a perfect option for the novice investor who wants to do good but also tap into the potential to make money. The fund's largest holdings are in Microsoft, Apple and Alphabet, and total investments in the mutual fund are equal to about $5.6 billion.
4. SPDR SSGA Gender Diversity Index ETF (SHE)
The SPDR SSGA Gender Diversity Index seeks to empower and invest in female entrepreneurs and companies that place female employees in the highest positions of power.
The mutual fund ranks corporations in the fund by three standards of gender diversity and employee rights that help close the gap between men and women in the workplace. These include the average difference in pay between male and female employees and the breadth of paid maternity/paternity leave. The fund is diverse, with 165 holdings and over $278 million in managed assets.
Some of the fund's largest holdings are in Johnson & Johnson, Mastercard and Home Depot, all of which have women on their boards. The SPDR SSGA Gender Diversity Index could work for investors who want to place their money into large-cap stocks and support a more diverse, female-friendly workforce.
5. Eventide Gilead Fund (ETGLX)
The Eventide Gilead Fund is a religiously grounded fund whose mission statement is “to honor God and serve its clients by investing in companies that create compelling value for the global common good.”
Managers invest selectively in mid-size corporations that shareholders believe adhere to the firm's values. The fund's holdings are massive, with more than $3.6 billion in assets currently under management; the fund's largest holdings are Palo Alto Networks, Old Dominion Freight, Mettler Toledo, Trane Technologies, Flywire Corp. and Waste Connections. No one investment makes up over 5% of the fund's total composition, so assets are diverse.
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However, attempting to choose stocks in a way that conforms with Christianity comes at a price. Depending on which class fund you choose, total expenses could be up to 2.11% (Class C), which is significantly higher than others included on this list. Class I shares, however, are more affordable, available at NAV or at a $1,000 or even $100 minimum for those who purchase directly from Eventide.
6. TIAA-CREF Social Choice Bond Fund (TSBRX)
The TIAA-CREF Social Choice Bond Fund has an advisor expense ratio of 0.53% — considered low for an actively managed fund — and holds most of its assets in U.S. Treasury notes, bonds and bills. The fund is unique because, unlike other options on this list, the majority of its holdings are bonds, including fixed-income securities of all types.
The fund pays special attention to investing in “securities that demonstrate environmental, social, and governance (ESG) leadership and/or direct and measurable environmental and social impact,” which fund managers believe is a strategy that results in higher sustainability.
Environmental and societal impact is measured by a number of factors, including the bond issuer's commitment to providing affordable housing, annual investments in sustainable energy and development of resources available to low-income and historically underserved communities and populations.
What's a Socially Responsible Mutual Fund or ETF?
Every mutual fund and ETF company has its own idea of what makes a company socially responsible. Funds may place an emphasis on one or more factors when managers choose stocks to include in the fund. Your retirement journey might put you in the path of these funds, and it would be smart to use a retirement income calculator to better establish your goals.
The Fund Vets Stocks For You
When you invest in a socially conscious fund, it does the vetting for you. Researching stocks is difficult, especially if you are an inexperienced or casual investor. A mutual fund or ETF, however, is duty-bound to maintain the mission stated in its prospectus. As a result, you know that the fund is dealing in securities that are socially conscious and have remained so.
Mutual funds and ETFs allow you to dabble in thematic investing, buying into funds that focus on themes. Remember, however, that investment themes can last for several years or fizzle out in just a few months. Additionally, you can look into funds that focus on a specific type of social consciousness — solar energy, wind energy, etc.
How an employer treats their employees and other labor standards say a lot about the company's values. The most socially responsible companies offer their employees a host of benefits, ranging from generous paid maternity and paternity leave, comprehensive medical and dental insurance plans and opportunities for employees to advance in the company.
Under law, corporations are not allowed to discriminate in their hiring based on race, gender, sexuality, nation of origin or other protected classes. However, some companies go above and beyond to empower female employees and employees from disadvantaged backgrounds through continuing education programs and increased diversity quotas. Corporate social responsibility is not the same as investment advice. Choose the growth funds that can both maintain their market value and help you reach your retirement goal.
Though most corporations do some sort of giving back with their profits, some companies go the extra mile pledging a certain percentage of earnings to local and national community causes. At times, these efforts might dovetail with government organizations, but some equity funds have struck out on their own to improve communities across America.
The most socially responsible corporations also own up to their contributions to global warming and pollution.
Corporations may put a cap on the amount of emissions they put into the environment, retool their products to contain less waste or to be more biodegradable or offer annual or semi-annual transparency reports that educate shareholders on what the company does to offset its impact.
Socially responsible companies may create their products in an ethical way — by paying their employees a living wage and avoiding sweatshop labor — or they may refuse to enter, support or partner with certain markets that are known to cause harm — for example, the manufacture of cigarettes, alcohol or UV tanning beds.
Adherence to Religious Values
While not inherently socially responsible, some corporations align themselves with the teachings and doctrines of a certain religion. Do your research if you want to support a business whose religious beliefs align with your own.
As you choose which funds to invest in, you'll need to decide which factors best fit your beliefs. Let's take a look at some of Benzinga’s favorite socially responsible funds available for new investors. Mutual funds and ETFs can go a long way as you create an investment objective and plan to increase your retirement savings. At the same time, you should choose funds that best meet your needs.
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Choose the Right Socially Responsible Mutual Fund or ETF
As public concern for and awareness of social injustices and the environmental impact of corporations reaches an all-time high, investing in companies that do more to care for employees and their families, control pollution and serve their communities can be a sustainable and profitable investment strategy. For example, as new government restrictions are placed on coal mining, investing in companies working to develop clean energy reflects bright long-term financial prospects.
However, investors need to treat these socially responsible funds with the same level of scrutiny when investing in any other stock, bond, ETF or mutual fund. Don't assume that just because a fund bills itself as socially responsible that it will adhere to your specific values. Before you invest, research the fund's criteria for asset selection. Some fund managers are much more strict when it comes to inclusion than others. Finally, don't abandon what you've learned about investing just because a fund aligns with what you believe is right.
A poorly managed fund does little to help the communities it seeks to serve and even less for your long-term financial goals. You’re trusting the fund with your money, and that means you should know what your money is doing. If you feel as though the fund is not acting in your best interests, consider a withdrawal and reinvestment in another fund. You can speak to an investment adviser or return to Benzinga for more information.
Frequently Asked Questions
What are socially responsible mutual funds and ETFs?
These funds focus on those companies that are promoting diversity, the environment and community support.
What are some excellent socially responsible mutual funds and ETFs?
Several outstanding mutual funds include the SPDR S&P 500 Fossil Fuel Reserves Free ETF, the iShares MSCI ACWI Low Carbon Target ETF and the SPDR SSGA Gender Diversity Index ETF.
How do ESG funds work?
ESG funds are investment funds that focus on companies with sustainable and ethical practices. They consider factors such as carbon footprint, labor practices, diversity and governance. ESG funds aim to generate financial returns while also making a positive impact on society and the environment. Investors can align their financial goals with their values by investing in these funds.