Socially Responsible ETFs

Socially Responsible ETFs List
(click on symbol for data and articles)

Socially Responsible ETFs
iShares KLD Select Social Index Fund (KLD)
iShares KLD 400 Social Index Fund (DSI)
Claymore/KLD Large Cap Sudan Free Social Index (KSF)

What Are They?

• "Socially responsible" ETFs hold stocks of companies that have positive environmental, social, political or corporate governance policies. They may avoid stocks in certain industries, such as tobacco or gambling stocks, or stocks of companies that operate in certain countries, such as Sudan.

Why & How To Use Them

• Socially responsible ETFs may be broad enough to use as a core US stock fund in a portfolio. The iShares KLD 400 Social Index fund, for example, can be viewed as an alternative to the S&P 500 for investors who don't want to hold "unethical" stocks, or who think that the stocks of socially resonsible companies will outperform in the long term.

What to Look Out For

• Socially responsible ETFs may be challenging to include in a diversified portfolio if it's not clear which stocks they contain. That may lead to overlap with other ETFs. Also, the lack of large cap/mid cap/small cap and growth/value socially responsible ETFs limits investors choices.
• Socially responsible ETFs tend to have higher expense ratios than broader US index ETFs. Check the annual expense ratios before you buy.

Further Reading

• Articles about socially responsible investing: Should One Invest in Unethical Companies? (Chad Brand), Socially Responsible Investing (Tom Coyne), Socially Responsible ETF Investing (Carl Delfeld), Why Socially Responsible ETFs Haven't Taken Off (Market Participant).
• Articles discussing these ETFs: Does KLD's New SRI Dividend Fund Make the Cut? (Matt Hougan), Claymore Securities/KLD Launch Sudan Free Large-Cap Core ETF (David Neubert), Claymore/KLD Sudan-Free Large-Cap Core ETF (Matt Hougan), Claymore Launches New High Income and Sudan Free ETFs (Tom Lydon).
• For a critique of narrow theme ETFs, see William Bernstein's Who Needs 'Em? The List of Obscure ETFs Grows.
• Narrow sector and theme ETFs tend to have higher expenses and spreads than broader index ETFs. See Matt Hougan's Watch Expenses & Spreads For HealthShares, PowerShares, WisdomTree ETFs.
• It's generally agreed that expenses have a significant impact on long-run returns. However, Michael Krause argues that ETF Fees Are Largely Irrelevant and Roger Nusbaum agrees.

This page is part of The Seeking Alpha ETF Selector which sorts ETFs by type, highlights how to use them and what to look out for, and provides links to articles that discuss key issues for investors.