The last two, LOWC and CRBN, track the MSCI ACWI Low Carbon Target Index and both charge 0.20%. The funds aim "to favor stocks from firms with lower greenhouse and carbon emissions (relative to firm size) while maintaining very tight tolerances to a broad and market-like index, the MSCI ACWI," according to our fund reports on the two.
Again, the construction looks to minimize the investment thesis with broad market tilts.
More Broad Tilts
KLD and DSI are broader environmental, social and governance plays. I suspect more new products will look like these. They use indexes from MSCI that weight according to ESG scores as factored by MSCI.
KLD "caps security weights at 5% and limits sector deviation from the broader MSCI USA index to 3%, ensuring that the fund doesn't deviate wildly from the broader equity market," our fund report says. And DSI maintains reasonable "market-like exposure. While the fund excludes a lot of familiar names, like Apple, Exxon Mobil and AT&T, it avoids making huge sector bets."
Built With Safety In Mind
As you can see from the table below, other ETFs in the space reflect the same themes on the environment or about gender and race, or workplace issues in general. And there are other mitigation tilts like equal weighting for funds with narrow focus and heavier screens.
Beyond the funds mentioned, the rest of the SRI funds have few assets under management and can have trading spreads of 9%(!). More of these types of funds are coming and the competition for investors will be difficult.
The biggest obstacle may be convincing investors that socially responsible ETFs really don't have that narrow of a focus, despite their labels, at least with the ones on the market now. They are built with safety in mind, built with the idea of not losing sight of the broad market.
These "feel-good beta" funds are a prudent way to express your socially responsible investment leanings. How much "principle" is sacrificed is left in the eye of the beholder.
At the time of writing, the author owned none of the ETFs mentioned. Drew Voros can be reached at [email protected].