DIY Investor Magazine
|
June 2017
17
In the example above, you can see that
has been neck and neck wit
for the last 5 years. The
lead has changed hands many times but there is little in
it. It turns out that socially responsible investments can
be easy on your conscience and your portfolio.
HOW DO SRI INDICES WORK?
SRI indices vary so it’s important to make sure that your
chosen ETF tracks one that matches your concerns.
Often an SRI index starts as a clone of a well-known
parent index such as MSCI World. Firms that cross the
index’s red lines are shunned. MSCI World SRI knocks
out companies with their fingers in the following pies:
•
Alcohol
•
Gambling
•
Tobacco
•
Military weaponry
•
Civilian firearms
•
Adult entertainment
•
Genetically modified organisms
Many companies are conglomerates so they will be
red carded if their sin revenues top a certain size or if
they’re fundamentally involved as a producer, supplier
or distributor. Some indices will then upweight virtuous
equities that score highly against ESG criteria such as
strong environmental practices, respect for human rights
and positive employee relations.
The screening process means that an SRI index is
likely to be more concentrated than its amoral parent –
MSCI Europe has 446 constituents versus 113 for MSCI
Europe SRI.
But some indices will compensate by retaining their
parent’s regional and risk-return characteristics.
SRI ETF SELECTION
Naturally choice is the winner as the popularity of SRI
ETFs grows. You can responsibly invest in a global SRI
ETF; across regions like the Emerging Markets; within
single countries, or sustainable industries such as clean
energy. You can invest according to religious principles
too, as in
As you
probably suspect already, MSCI is the dominant index
family in SRI investing, although others exist too, each
with their own moral code
MORAL FOCUS OF SRI INDICES
REGIONAL FOCUS OF SRI INDICES
Source: justETF.com; Research
Source: justETF.com; Research
The other thing to know before you go off to polish
your halo is that many SRI ETFs have a relatively small
amount of assets under management. ETFs that fail
to grow in size run the risk of being closed by their
providers which could leave you sitting out of the market
until you’re able to redeploy your cash.
To find SRI ETFs searc
using the
filter social/environmental.
