December 14, 2016
December 14, 2016
While we all want our portfolios to grow and thrive, the question many investors are increasingly grappling with is “at what cost do I chase returns? Is doing well reward enough, or do I also want to make a difference through my investments?” Aligning investments to socially responsible values used to be a simple process – first introduced in the 1920s when The Pioneer Fund began screening out alcohol, tobacco and gambling “sin stocks” from the fund’s portfolio.
Today, however, there are hundreds of values-based funds in the market, each with its own unique approach to proscribing or incenting certain activities and behaviors. Some strive to address environmental issues like global warming by limiting or eliminating investments in fossil fuels. While others approach the same issue from more of an inclusionary perspective by targeting investments in alternative energy providers. Even many traditional equity and bond funds are now employing environmental, social and governance (ESG) screens as one measure of a security’s suitability for inclusion in the fund.
Depending on how aggressively you wish to adhere to a socially responsible investing (SRI) mandate, it’s vital to understand that there will be associated risk and return trade-offs. In an ideal world, eliminating investments we deem morally, ethically or socially unacceptable wouldn’t adversely impact our portfolio’s performance or its risk characteristics – but committing to doing “good” by employing a far-reaching SRI strategy might have some impact on your ability to do “well.”
Given the wide array of SRI investment options, deciding on the right fit that aligns with your personal values and determining how much of your portfolio to allocate to these mandates can be a difficult challenge. Many funds with similar names can actually be quite different in composition and strategy once you “look under the hood.”
At B|O|S, we carefully screen and select SRI investments based on a clear understanding of their objectives, strategy and portfolio composition. We also consider their inherent diversification, cost structure, tax efficiency and track record – the same metrics we analyze for conventional funds. And finally, we work with you to genuinely understand the personal values and beliefs that drive your desire to invest responsibly. The following are seven SRI funds in our research coverage that currently meet our broad criteria:
We believe the funds above offer a broad array of SRI options but we continue to assess new and evolving fund offerings to widen our scope. If you prefer a more customized approach, a separate account solution can allow you to build a portfolio of individual stocks or bonds based on customized SRI criteria. Sub-advisors typically require a minimum account size, ranging from $300,000 to $1 million. They also charge annual management fees, separate from any B|O|S fees, which can range from 0.20% to 0.40%.
These, along with a host of other investment solutions, are available to help better align your investments with your personal values and beliefs. Deciding on an appropriate solution and the optimal means of implementing it, however, requires careful consideration. Socially responsible investing shouldn’t be an all-or-nothing decision. Let us know if you’re interested in exploring the concept further, and we’ll help you navigate the options to find a solution that works.