Sustainable ETF choice

[FrugalPatat]

We (me and Mae) are considering putting money in these SRI (Socially Responsable Investing) ETFs:

iShares MSCI World SRI UCITS ETF EUR: http://www.morningstar.be/be/etf/snapsh ... 0P0001CWZ8 (or on the london exchange: http://www.morningstar.be/be/etf/snapsh ... 0P0001BT2E)

iShares MSCI EM SRI UCITS ETF USD (Acc) (EUR): http://www.morningstar.be/be/etf/snapsh ... 0P00018CYI (or http://www.morningstar.be/be/etf/snapsh ... 0P00018DAD, not sure what the difference is)

I was wondering what your opinions are on these ETF?

1) They are rather new, and their size is much smaller than their non-SRI variants. Is this something to worry about?
2) I notice they are available on different stock exchanges. Does it matter which one we buy from? (besides transaction cost)
3) Is this label 'Socially Responsible Investing' even worth anything?


Thanks

[Jason]

I would answer "no" to all three questions.

If you want to co-join your social/political concerns to your investing (which IMHO is a highly dubious endeavor both from a principal and practical standpoint), in utilizing ETF's as an investment vehicle you are in fact out-sourcing your decision making process.

My suggestion is to identify those issues which hold the greatest significance to you i.e. deforestation, hiring practices, or industries that you are philosophically opposed to and do your best to avoid investing in instruments that hold them. On the flip side, If there are companies that you specifically support, find instruments that possess them. But making a term as ambiguous as "social responsibility" an investment classification just doesn't seem wise to me. In this context, I view it as a mere marketing term. And what does it really mean. Ok, the ABC Dudley Du-Rite company closed its sweat shops in India but it's douchebag VP of Marketing is grabbing every ass he can get a hand on at the company picnic. I mean where do you start and stop with this?

[Farm_or]

I would answer "no" to all three questions.

In this context, I view it as a mere marketing term.

"Marketing" buzz words: socially responsible, sustainable, organic, eco-anything, green and clean. All are subject to interpretation.

[Mae]

I would answer "no" to all three questions.

If you want to co-join your social/political concerns to your investing (which IMHO is a highly dubious endeavor both from a principal and practical standpoint), in utilizing ETF's as an investment vehicle you are in fact out-sourcing your decision making process.

Can you elaborate on this?

I do appreciate your suggestion. It makes sense.

A bit more info on the sustainable ETFs we have selected:

"MSCI SRI indices captures large and mid-cap stocks across the Developed Markets countries within their respective region. The indices are capitalisation weighted indices that provide exposure to companies with outstanding environmental, social and governance (ESG) ratings. Constituent selection is based on research provided by MSCI ESG Research. Companies, which generate revenue from adult entertainment, alcohol & tobacco, gambling, weaponry, nuclear energy, and genetically modified organisms, are excluded.

Methodology of the MSCI SRI indices:
Rebalanced in February, May, August and November
Stocks are selected in a best-of-class way within different categories, concerning the social, economic and ecological sustainabilityg
Weighted by float-adjusted market capitalisation
Excluded sectors: adult entertainment, alcohol & tobacco, gambling, weaponry, nuclear energy, genetically modified organisms"

I don't think we endeavor to select the 100% purest sustainable ETFs, we are looking at it from a practical point of view. I.e., as sustainable as possible.

[Jason]

Maybe I can compartmentalize or maybe I'm just a hypocrite, but I'm in the stock market to make money not a point. And companies are just a bunch of humans doing some type of thing so I don't really care what they do as long as they make money. I did have a moment with ABBVIE (which I own) when I became of aware of their pricing practices, but well, capitalism and shit. And that's kind of my point, although they are a company in the business of helping people live through medication, they are complete scumbags, unless you are a shareholder. So they don't make porn or cigarettes or fake sheep but they are pricing out people from drugs that can help them. I don't see that as any worse than making money off of degenerate gamblers or selling missiles to an insane leader of a third world country or for that matter, the one I live in.

Quite frankly, if there was an ETF called MSCIAwfulshit that was limited to holdings in midget porn, synthetic heroin, Uzi's, brothels, guns, synthetic animals for the beastiality community, Middle Eastern nuclear warhead start ups, confederate flag manufacturers, Russian media outlets, ISIS homeschooling products, and slave ships, but was returning 15%, well I'm going to look into it.

[jacob]

@Jason - https://en.wikipedia.org/wiki/Vice_Fund (VICEX)

[jennypenny]

I understand and respect the sentiment, but at this point I consider financial markets to be a bigger threat/drain on the planet than most other things, so any participation in them makes me complicit regardless of the investment vehicle I choose.

[Jason]

@JLF -I can only imagine how much your book profits have grown in that.

Thank you.

[Sclass]

I understand and respect the sentiment, but at this point I consider financial markets to be a bigger threat/drain on the planet than most other things, so any participation in them makes me complicit regardless of the investment vehicle I choose.

You had me scratching my head with this. But I see it now. In this world, people get rewarded for doing the wrong thing. Often the more wrong the bigger the reward. Whether it’s making plastic bags, Earth movers or e-cigs my capital efficiently allows them to make more.

I was asked about responsible investing twenty years ago when I made a big stake in Phillip Morris before the break up. My coworkers scolded me saying that they would not invest in that. I respect that. They specifically said, “I want to invest in things I can feel good about that make the world better.”

My reply, “I want to invest in things that go up. Let’s be honest, the reason you want to invest is to enrich yourselves. I get it. Just cut to the chase and buy stuff that goes up. Constraining yourself to responsible businesses will make a difficult game even harder to win.”

I think in the same discussion I got laughed at for buying Taco Bell (Yum brands) instead of Hewlett-Packard through our employee stock purchase program. Even with the little discount on HP, YUM tore it up. And no, I don’t eat their unhealthy disgusting tacos.

Funny to look back twenty years. The rest is history. Those guys still work in the same office for a tiny HP spinoff. Their worst enemies were promoted to be their bosses.

Oh man, I just did a comparison of HPQ vs. YUM for the last twenty years. Brutal.

Being responsible is for your philanthropy effort after you make a pile.

[DutchGirl]

Hi FrugalPatat,

I have read the above arguments before, but I feel like: at least I'm doing something, trying something. And at least I'm not the one adding more fuel to the wrong fire. It isn't perfect, but it's a good start.

I also exclusively invest in SRI mutual funds, indexes and ETFs, plus I have some shares in local wind energy cooperations. And I have seen some nice returns for my choices so far. This was in the last 10 years, and of course everything grew in those years, but my ETFs/index funds/shares did grow nicely, too.

[Mae]

Maybe I can compartmentalize or maybe I'm just a hypocrite, but I'm in the stock market to make money not a point. And companies are just a bunch of humans doing some type of thing so I don't really care what they do as long as they make money.

Fair enough. I don't see these things as disconnected; in fact, quite the opposite.

[Mae]

I understand and respect the sentiment, but at this point I consider financial markets to be a bigger threat/drain on the planet than most other things, so any participation in them makes me complicit regardless of the investment vehicle I choose.

I do not see it as a black-or-white issue. Any participation =/= responsible investing =/= full-blown supporting the capitalist system

[Jason]

(@) Mae - When looking at the criteria for the SRI, it seems that it is merely the elimination of certain industries. That methodology is reductionist and simplistic to me. Although I don't gamble or drink, I do not look at either as a non-negotiable wrongful activity. NIKE (which I own) has been the subject of wrongful/questionable business, employment, and marketing practices throughout its history but would not be eliminated as "Sporting Goods" is not a SRI category. Wells Fargo (which I use to own) was engaged in systematic, fraudulent consumer activity. To me, its not just what a business does but how it runs that should be a factor in SRI and that's exactly why I generally choose not to acknowledge it.

[Mae]

I have read the above arguments before, but I feel like: at least I'm doing something, trying something. And at least I'm not the one adding more fuel to the wrong fire. It isn't perfect, but it's a good start.

If I wouldn't be able to invest in sustainable ETFs, I'd probably go as far as donating some of my profit to charity.

Can you share a bit more about your philosophy? Or interesting sources/inspiration for those who want to invest in sustainable financial products (however mutually exclusive those two may be)?

[Mae]

@Jason: there are other factors that are considered, e.g. ESG criteria (https://www.investopedia.com/terms/e/en ... iteria.asp)

I realize one cannot eliminate every 'evil' company from one's portfolio, but why not pursue the best possible responsible investing scenario if the information is relatively easily available? I, personally, cannot turn a blind eye to that.

I do agree that these methods are currently somewhat reductionist, but would be willing to support them nonetheless to see where they are heading. (Hoping for improvement in the near future.)

[Jason]

I realize one cannot eliminate every 'evil' company from one's portfolio, but why not pursue the best possible responsible investing scenario if the information is relatively easily available?

Because it's fluid. NIKE has been in the news recently as there has been a shake up due to some in-house issues. However, its stock is near an annual high. Should it be avoided/sold because of its corporate culture? Should it be included/bought because of how it responds to issues in its corporate culture? To me, it's not only subjective, but could lead to buying and selling at inopportune moments based on non-fundamental issues. Most ethical issues are not equivalent to HerbaLife ethical issues.

[Mae]

@Jason: I (optimistically) assume that fluidity is in some way taken into account, but would have to look into that.

[jennypenny]

@Mae -- It's not that it's black or white, but there's no getting around the fact that you're fueling the growth economy engine when you invest in financial instruments.

If someone shops around and buys the most fuel-efficient green vehicle they can find, I applaud that and they probably sleep better at night. That doesn't negate the fact that by driving a car -- any car -- they are increasing the burden on infrastructure, mining, shipping, and all the other systems that support automobile ownership. The greener thing to do would be to give up owning a car entirely.

Don't get me wrong, I support what you're doing. But as sclass pointed out, the best thing to do is to make bank as fast as possible so that you can design your life in a way that's more in line with your ethics. It's reasonable to factor in ethics when making investment decisions, but don't let them dominate to the point where they negatively affect your ROI too much during the accumulation phase. Delaying FI will have a bigger impact overall because it will delay your ability to live according to your ethics full-time. Using the auto example, better to drive a cheap car regardless of how green it is if it means getting to a point where one can live car-free much faster.

[jacob]

(@) Mae - When looking at the criteria for the SRI, it seems that it is merely the elimination of certain industries.

That is literally how SRI(*) funds are constructed albeit typically at the company level rather than industry level. Managers (and ETFs) get or make a list of companies that they can't hold according to various ethical criteria of the specific list they're using. The list acts like a screen.

It gets real interesting when the ethics becomes controversial, e.g. one list would exclude a company because it doesn't provide health care benefits to gay partners while another would exclude the same company because it does. This is all fine, but it goes to show that just because something is listed as "ethical" does not guarantee that their ethics matches yours. It's therefore important to know which screening list a fund company is using.

(*) Or any other fund-type. There is, for example, also something called Biblically responsible investing as well as "Halal investing". The latter is really hard because technically charging any level of interest is considered usury which Islam forbids. (This was also forbidden in medieval Christian circles ... but people got around that "rule" using currency swaps by borrowing in an inflating currency and paying it back in a harder one.)

[FrugalPatat]

I also exclusively invest in SRI mutual funds, indexes and ETFs, plus I have some shares in local wind energy cooperations. And I have seen some nice returns for my choices so far. This was in the last 10 years, and of course everything grew in those years, but my ETFs/index funds/shares did grow nicely, too.

Any reason you invest in SRI mutual funds rather than just SRI ETFs?