A Deeper Dive Into ESG ETF Portfolios

August 31, 2017

Like Betterment, Wealthfront leans hard on Vanguard for that magic combo of cost and liquidity. The end result is a surprisingly similar portfolio, with a slightly lower all-in expense average (0.0784% vs. 0.1189%), but also a slightly worse starting point from an ESG perspective (5.09 vs 5.40).

The question is, is it possible to really move the needle here with the existing ETFs in the marketplace? The short answer is yes.

Here’s a crack at the same allocations from Matt’s portfolio, but instead of focusing on cost, it focuses “only” on the ESG rating for the desired exposures:

 

ETF.com's Super ESG Portfolio

Exposure Allocation Ticker Name Expense
Ratio %
ESG
Score
SIS % SRI
Exclusion
%
MSCI ESG Score
U.S. Equity 40% SUSA iShares MSCI USA ESG Select ETF 50 8.1991 9.05 5.22 8.73
Developed Markets 30% ESGD iShares MSCI EAFE ESG Optimized ETF 40 7.4391 8.02 10.26 8.05
Emerging Markets 5% ESGE  iShares MSCI EM ESG Optimized ETF 45 5.7248 5.06 1.85 5.91
Fixed Income 15% SCHZ Schwab US Aggregate Bond ETF 4 6.2283 0.91 2.40 6.00
REITS 5% SCHH Schwab U.S. REIT ETF 7 4.0355 9.83 0 4.27
Commodities 5% COMB GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF 25       6.89
        36.45 7.30 7.27 5.91  

 

Here we’ve leaned hard not on super-cheap Vanguard or Schwab, but on a slew of newfangled ESG launches from BlackRock, the iShares ESG series. You can’t do better than either of the two Schwab products for your real estate and bond exposure, so we’ve left those intact.

The impacts are significant. The overall rating of the portfolio climbs from the 5s up to 7.3, making it as ESG friendly as dedicated individual funds in the space. The “good stock” percentage climbs to 7.27% and the “bad stock” percentage gets under 6%.

But it comes at a real cost. The expense of this portfolio gets pretty pricey indeed. While 0.36% still seems like a deal when compared to some actively managed mutual funds charging over 1%, there is no getting over the fact that this feel-good portfolio costs six times more than Matt’s super-cheap version.

The other thing worth noting is that you can do better, depending on what’s important to you.

 

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