Impact investing has taken hold among millennials, because it means investing with a social and environmental conscience. Young people increasingly insist on putting their money into investments that contribute to the well-being of the planet and humanity. And this trend is not exclusive to millennials. Baby boomers and older investors are also getting on board.
As a response, various financial services companies such as MSCI and Morningstar have developed their own ESG (environmental, social and corporate governance) ratings to rank companies and investments on their adherence to various principles.
We have chosen five of the top socially responsible ETFs that are available today. We selected these ETFs based on their commitment to impact investing and assets under management. In other words, these are the five largest socially and environmentally responsible exchange-traded funds.
All figures are current as of December 27, 2017.
1. iShares MSCI KLD 400 Social ETF (DSI)
DSI tracks 400 companies that seek to make a positive contribution to social and environmental conditions. It uses an index replication approach that invests in the companies included in the MSCI KLD 400 Social Index. The Index excludes companies involved in weapons, tobacco and alcohol, nuclear energy and genetically modified foods.
There is a lot of technology in the portfolio, with 31% of the market value. Overall, total assets in the Fund are $1.01 billion, making it the largest fund in the category.
- Expense Ratio: 0.50%
- Assets under Management: $1.01 billion
- Average Daily Volume: 6,016
- Distribution Yield: 1.51%
- Number of Holdings: 405
- Price: $98.61
- YTD Return: 20.98%
2. iShares MSCI USA ESG Select ETF (SUSA)
This fund tracks the 100 companies in the MSCI USA ESG Select Index. The Index includes U.S. companies screened for high ESG ratings. Companies are weighted based on their ESG rankings with less weight given to companies scoring lower on ESG criteria. Top holdings in the Fund include Microsoft, 3M and Ecolab.
This is a popular fund, and comes in second in terms of the amount of assets under management. YTD the Fund has a return of 22.6% in 2017.
- Expense Ratio: 0.50%
- Assets under Management: $644.6 million
- Average Daily Volume: 2,371
- Distribution Yield: 1.78%
- Number of Holdings: 99
- Price: $111.36
- YTD Return: 22.56%
3. iShares MSCI ACWI Low Carbon Target ETF (CRBN)
This is a global fund that focuses on carbon emissions as its criteria for investing in companies. The Fund tracks the MSCI ACWI Low Carbon Target Index which screens companies for greenhouse emissions. CRBN has assets under management of $495.79 million. Return YTD for the Fund is 23.31%.
52% of companies are in the U.S. By sector the Fund is heavily weighted towards financials and information technology with 19.56% and 17.69% of the market value respectively. Top holdings in the Fund include Apple, Microsoft and Amazon.com.
- Expense Ratio: 0.20%
- Assets under Management: $496 million
- Average Daily Volume: 2,938
- Distribution Yield: 2.36%
- Number of Holdings: 1,224
- Price: $117.02
- YTD Return: 23.31%
4. SPDR SSGA Gender Diversity Index ETF (SHE)
This is a gender-diversity fund. It invests in companies that have a high percentage of women in positions as executives and directors. SHE looks at the 1,000 largest companies in the United States and measures the ratio of women to men that are in significant positions in the company. Only the top 10% of companies ranked this way are included in the fund.
SHE also weights each investment based on the market cap of the companies it invests in. The Fund has assets under management of $357.5 million with a YTD return of 15.31%. Top holdings in the Fund are Pfizer Inc., Coca-Cola, PepsiCo and IBM.
- Expense Ratio: 0.2%
- Assets under Management: $357 million
- Average Daily Volume: 2,493
- Distribution Yield: 1.82%
- Number of Holdings: 169
- Price: $70.92
- YTD Return: 15.31%
5. SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)
The SPDR® S&P 500 Fossil Fuel Reserves Free ETF is an index fund that tracks the holdings and return of the S&P 500 Fossil Fuel Free Index. This Fund focuses on S&P 500 companies that are not involved in refinement operations that generate or require storage of fossil fuel reserves. These companies also tend to be more climate cautious. Top holdings in the Fund include Apple and Microsoft. Top sectors are information technology and financials. Energy companies comprise only 1.67% of the Fund.
- Expense Ratio: 0.20%
- Assets under Management: $201.1 million
- Average Daily Volume: 1,603
- Distribution Yield: 1.65%
- Number of Holdings: 481
- Price: $64.89
- YTD Return: 23.18%
The Bottom Line
The days are gone when investors had to shrug off concerns about people and the planet when investing. These ETFs manage to find companies to invest in that demonstrate substantial sustainability programs seeking to reduce negative impacts. (See also: Impact Investing Funds: What are the Risks?)