Niche areas of the marketplace become fads almost overnight in some cases. Recently, socially responsible ETFs appear to have been expanding at a faster pace than other areas.
According to the Social Investment Forum, socially responsible investing (SRI) or environment, sustainability and governance screens (ESG), is expanding faster than the broader universe of all investment assets under management. Almost one of every nine dollars in management in the United States incorporated social and/or environmental screens as of 2007, comments Lorne Abramson for IndexUniverse.
It helps that the choices have rapidly expanded in the last few years, allowing investors to make plays on their own values, whether they’re based on religion, the environment or other ethical and moral issues.
iShares FTSE KLD Social 400 (NYSEArca: DSI), which is up 3.3% in the last month, tries to reflect the performance of the ESG index, the Domini 400 Social Index. The ETF has an expense ratio of 0.50%.
Additionally, iShares also offers iShares KLD Select Social Index (NYSEArca: KLD), which is up 3.2% in the last month and tracks a derivation of the FTSE KLD 400 Social Index. Because of the sector-neutral composition of the FTSE KLD index, the KLD ETF has a higher weighting in energy and industrial material stocks as compared to DSI. The fund also has an expense ratio of 0.50%.
It should be noted that the two funds trade at relatively light volumes. But they are the only two funds in the United States that track the broad, secular SRI indexes. However, there are ETFs that track niche areas of this sector, such as clean energy.
- PowerShares Global Clean Energy (NYSEArca: PBD): up 4.3% in the last month
- First Trust NASDAQ Clean Edge Green Energy (NYSEArca: QCLN): up 9% in the last month
- iShares S&P Global Clean Energy Index (NYSEArca: ICLN): up 7.5% in the last month
Pax World Management Corporation has licensed some FTSE KLD indexes as benchmarks for possible future international ESG ETFs. The registrations are awaiting approval by the Securities and Exchange Commission. The funds’ expected expense ratios are 0.55%.
Presently, there are no index and/or passive asset class alternative that targets mid- or small-cap stocks, and there are no international options with broad, secular ESG screens that are ex-U.S.
Max Chen contributed to this article.