Barclays Global Investors is planning to develop and introduce an iShares Genocide-Free ETF, offering an alternative to investors who are uneasy about holding securities of companies associated with genocide. According to a press release, the company plans to partner with an index provider to identify and screen out companies around the world that they believe are strongly connected to genocide. “We believe there is investor interest in genocide-free investing and that belief was reinforced through recent conversations with Investors Against Genocide, among others,” said Noel Archard, head of iShares product research and development. “As a result, we intend to develop an extension of our iShares socially responsible ETF offering with an iShares genocide-free ETF.”

While the details of the Genocide-Free ETF are yet to be determined, it seems likely a central component would be avoiding companies that are either directly or indirectly linked to the human rights abuses in Darfur. According to Investors Against Genocide, four major oil companies, including PetroChina (PTR) (China), Sinopec (SHI) (China), ONGC (India), and Petronas (PNAGF.PK) (Malaysia) are partnering with the government of Sudan, which is accused of using the majority of its oil revenues to fund the genocide. PetroChina and Sinopec are components of many China ETFs and Emerging Markets ETFs, while ONGC is a core holding of several India ETFs and Petronas is included in the MSCI Malaysia Index Fund (EWM).

As governments around the world place a renewed emphasis on eco-friendly business practices, one ETF firm is rolling out a line of products targeting firms with positive environmental and social factors. Portsmouth, New Hampshire-based Pax World Management has filed for approval on three “sustainability ETFs” based on indexes that determine holdings based on “ESG criteria” – environmental, social, and governance factors. The proposed ETFs include:

Among the 30 new exchange-traded products Deutsche Bank plans to launch through its db x-trackers unit in 2009 is a proposed fund that would track the S&P Carbon Efficient Index, a benchmark based on the performance of large-cap U.S. companies with relatively low carbon emissions while seeking to replicate the return of the S&P 500.

“This is the first time that investors have had the opportunity to track the S&P 500 with a 50% lower Carbon Footprint and 60% lower greenhouse gas emissions,” said Db x-trackers UK head Manooj Mistry.

As the ETF industry has exploded and investors have poured cash from traditional mutual funds into these investments, a number of interesting ETFs have popped up attempting to establish market share.

One interesting sector consists of socially responsible ETFs, which generally invest in companies with positive and ethical environmental and social policies. These funds will often avoid companies engaged in alcohol, tobacco, firearms, and gambling.

The market for socially responsible investing continues to grow for exchange-traded funds investors. Now, a group based in Oklahoma City, Okla., is proposing a set of faith-specific ETFs to launch in the near future.

FaithShares Inc., which is advised by FaithShares Advisors, is asking the Securities and Exchange Commission for approval to offer five new SRI-themed ETFs. Those would be:

A "cointegrated" security pair is one for which the return series are correlated in a mean-reverting manner. Thus, a strongly cointegrated pair can make a terrific long-short trade after a period of performance divergence.

As described earlier in the year, the way the intuition behind cointegration was first related to me, was to imagine a man walking his dog. The man and dog may seemingly move independently and in different directions for a while, but the leash ensures that they will eventually cross paths.

For those of you that have been reading the Smug Investments blog, Smugly Green, you will be familiar with our total green portfolio concept. For non readers, the ever expanding universe of green, light green, and responsible ETFs are making it possible to start thinking out of the box when creating your green portfolio. In order to do it right and be properly diversified, the notion of green may have to be stretched, but it's well worth the effort to create a more fully sustainable investment portfolio that doesn't necessarily sacrifice performance.

The obvious start to any green portfolio is the green energy options, some of which I laid out in my Beginner's Guide to Green Investing on Seeking Alpha. However, green energy is just a piece of the overall puzzle, albeit it an important one. The best way to start expanding the notion of a total green portfolio is to redefine asset allocation categories - instead of Small Cap, Mid Cap, Large Cap, and Bonds, Smug Investments' allocation classes look like this:

Harry Markowitz’s 56-year-old portfolio-optimization theory may be middle aged, but it’s forever young in the service of tackling the investment challenge du jour.

An intriguing example comes from a custom indexing shop in the San Francisco area, a region that’s no stranger to finding inspiration in the finance literature for minting investment strategies. The Bay Area in the 1970s was host to the original index fund and the first disciplined use of tactical asset allocation in a quantitative framework. The same spirit of academically motivated innovation is alive and kicking at the Sausalito, Calif.-based Aperio Group LLC. This nine-year-old boutique has updated portfolio optimization for a new generation of tax-efficient and socially responsible investing (SRI) indexing strategies.

So-called Socially Responsible Investing is a big trend on Wall Street these days. ETF investors can get in on the gambit with the iShares KLD Select Social Fund (KLD). The fund which the index tracks selects stocks from the Russell 1000 (an index of large and mid-cap domestic stocks) screened based on non-economic criteria that KLD considers socially desirable, such as workplace diversity, product quality & safety record, environmental friendliness, etc. The index also excludes all tobacco-related stocks, but does include some holdings that might surprise you, such as Exxon Mobile (XOM).

That’s all fine. However, the problem is that socially responsible investing probably doesn’t work. I have been unable to find any convincing evidence which shows that SRI benefits anyone, either by delivering superior investment returns, or by encouraging companies to “do the right thing” in order to be included.

Index Universe assistant editor Heather Bell chatted with KLD's Peter Kinder and Thomas Kuh, Ph.D., shortly before the launch of KLD's latest index, about the firm's new global sustainability index, the evolution of socially responsible investing [SRI] and changing attitudes toward SRI.

Kinder is the president of Boston-based KLD Research & Analytics Inc. [KLD], which he co-founded in 1988. He was also one of the co-founders of Domini Social Investments LLC and was a principal there from 1997 to 2000.

He was speaking about Wal-Mart (WMT) specifically, it turns out, but there are a lot of investors who avoid buying shares in companies where they disapprove of their products, their way of doing business, or both. Common examples include stocks with ties to alcohol, tobacco, firearms, casinos, Mideast oil, etc. It was a good question, and one that I don't think I've addressed on this blog before, so I figured I would give my perspective.

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)

Then there is the China factor. The Chinese leadership has targeted China as a region where there is a great power vacuum they wish to fill not to mention ample natural resources to fuel its 10% plus economic growth. Trade between China and Africa soared 40% to a record $55.5 billion last year. Direct investment has reached a cumulative $6.5 billion and a third of Chinese oil now comes from Africa.

Socially responsible ETFs include:

As a result, I was excited when Tom Kuh at KLD Research & Analytics told me that his company was preparing a SRI dividend index. I would love for investors to be able to replicate any investment strategy with an SRI approach, should they choose to do so, and equity income is certain a popular strategy right now.

Besides, I figured that the index would stand some conventional wisdom on its head. Think dividends and you think smokestacks, right? The folks who either distrust or dislike SRI (and they are legion) often trumpet the fact that SRI investments suffer from low yields. If KLD could come up with a dividend index that disproved that theory, it would be quite a coup.

Pax May Bless Some 'Sin' Stocks

Looking at the fund's performance over the past year, KLD's quantitative strategy has been quite successful at matching the benchmark index. The very low trading volume relative to the number of KLD shares outstanding can easily be explained by most owners of KLD being buy-and-hold types rather than active traders. SDY also has ridiculously low volume relative to size for the same reason.

The reticence within the ETF world to embrace SRI [Socially Responsible Investing] is puzzling. SRI groups and firms have promoted their investing style as being of increasing interest to the investing public, which, according to surveys, sees SRI as a vehicle for everything from saving the environment to saving corporate honchos from themselves...