Building on the environmental, social and governance theme, "sustainability" and "sustainable investing" are some of the latest buzzwords to permeate the exchange-traded funds (ETFs) industry. The realm of ESG and sustainable ETFs, which can also be deemed socially responsible investing (SRI), is growing rapidly in terms of population. When liberally applying ESG and sustainability definitions, the universe of such ETFs is close to 50, and that includes a growing number of fixed-income funds.

At the end of last year, the number of funds espousing virtuous and sustainable investing – including mutual funds and ETFs – was over 1,000, with $2.6 trillion in assets. ETFs are still a small part of the SRI equation, with many of the largest sustainable ETFs hovering around the neighborhood of $1 billion in assets. The largest ETF focusing on ESG and sustainability principles is the $903.6 million iShares MSCI KLD 400 Social ETF (DSI). Just a month shy of its eleventh birthday, DSI is also one oldest ESG ETFs on the market. (See aslo: A Seasoned Vet Among ESG ETFs.)

DSI tracks the MSCI KLD 400 Social Index. "The MSCI KLD 400 Social Index is designed to provide exposure to companies with high MSCI ESG Ratings while excluding companies whose products may have negative social or environmental impacts," according to MSCI. "It consists of 400 companies selected from the MSCI USA IMI Index, which includes large-, mid-  and small-cap U.S. companies. It aims to select companies with the highest ESG Ratings in each sector and maintain sector weights similar to those of the parent index."

An important factor investors should consider with DSI, or any sustainable fund for that matter, is that these products' stories are equally about what is excluded from the funds as what is included. Regarding DSI, the ETF's underlying index excludes stocks from some predictable industries, including alcohol, firearms, gambling, nuclear power, pornography and tobacco.

Even with all those exclusions, DSI is home to 402 stocks, and even when accounting for the various industries it will not hold, DSI does provide exposure to all 11 GICS sectors. Not surprisingly, the energy, materials and utilities sectors are three of the ETF's five smallest sector weights, combing for just over 9% of the fund's portfolio. Excluding alcohol and tobacco stocks trims DSI's consumer staples exposure to 8.5%. About half of the ETF's exposure to that sector is confined to Dow Jones Industrial Average components The Procter & Gamble Company (PG) and The Coca-Cola Company (KO).

Conversely, the technology sector is usually a hallmark of sustainable funds, and DSI is no exception. DSI devotes 28% of its weight to technology stocks, a substantial overweight to that sector relative to the S&P 500. Five of the ETF's top 10 holdings are technology stocks, including Microsoft Corp. (MSFT) and Google parent Alphabet Inc. (GOOG). (See also: Socially Responsible Investing: What You Need to Know.)

Over the past three years, DSI has slightly trailed the S&P 500, but there are times when the ETF does beat the U.S. equity benchmark. Largely due to its overweight in tech and underweight in energy, DSI is beating the S&P 500 this year. DSI's three-year standard deviation of 10.6% is only slightly above the 10.3% found on the S&P 500, but the sustainable ETF sports a lower dividend yield and a modestly higher price-to-earnings ratio.

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