Are Your Investments Green in Two Ways?
With the recent events in Parkland Florida, there are numerous people that are looking for avenues to have their voices heard on social issues. One way to do that is to talk with your wallet. There are ways that investors can exclude certain industries from their investment portfolios such as firearms. Investors can exclude certain other industries as well, such as oil, alcohol, gambling, tobacco and even adult entertainment. This is done through Socially Responsible Investing (SRI). There are a variety of SRI investment options available. Let’s dive in a little deeper to understand them more.
History of SRI Investing:
Socially responsible investing has typically reflected the issues of the times. Socially responsible investing started in the 1960s in conjunction with the civil rights, anti-war and women’s rights movements. Martin Luther King Jr. brought awareness and targeted companies that opposed the civil rights movements.
As the issues evolved, so did the investment options. Global warming (or climate change) brought out the demand for mutual funds that invested in sustainable or green energy companies.
Investing with Socially Responsibility
There are two ways that an investor can invest in a socially responsible manor; buy stocks/bonds only with companies that fit the investor’s SRI criteria or invest in a SRI mutual fund or ETF. Picking individual companies to invest in may take significantly more time to research and could potentially harbor more investment risk.
When reviewing socially responsible funds, make sure that you have a full understanding of the types of companies or industries the fund is excluding. Be sure to evaluate the fund that coincides with any other mutual fund you would invest in.
Related: Active Vs. Passive Debate
How Does the Return on an SRI Fund Compare?
The traditional thought with SRI mutual funds was their performance typically lagged their more contemporary mutual fund counterparts. Is that really the case? Nuveen performed a study in July of 2017 that compared the performance of socially responsible indexes to broad market indexes*. They found that over a 25-year span, there was no statistical difference in performance between a broad index and a socially responsible index. The ten-year average of the socially responsible indexes ranged from 5.96% to 7.39% compared to 6.92% and 7.05% of the broad indexes.
The study also concluded that the volatility of the SRI indexes and the broad indexes were not significantly different. Overall, SRI performance was similar and an investor did not have to take increased risk to keep pace with performance.
If you’re convictions drive you enough to want to make a difference, investing in socially responsible funds can be another avenue to support causes and companies that you believe in.