Do Socially Responsible Funds Help You Sleep At Night?
October 25, 2017

Do Socially Responsible Funds Help You Sleep At Night?

I once met a guy who refused to invest. He didn’t want to own businesses that built missiles, hooked kids on cigarettes or extracted air-polluting fossil fuels. He met a financial advisor who offered a solution. He recommended a Socially Responsible fund. But its fees were high.

Fortunately, Socially Responsible (SRI) index funds exist. Most of them don't invest in industries that manufacture tobacco, alcoholic beverages, weapons or nuclear power. But that doesn’t make them perfect. After all, your social values might differ your neighbour’s.

For example, Charles H. Hennekens and Felicita Andreotti reported in American Journal of Medicine that obesity may soon overcome smoking as the leading cause of preventative death in the United States. According to the Harvard T.H. Chan School of Public Health, people who drink 1-2 cans of sugary drinks per day increase their odds of developing Type 2 diabetes by 26 percent. A two-decade study following 40,000 men found that those who drank just one can of soda per day had a 20 percent higher chance of dying from a heart attack, compared to men who rarely consume such drinks.

That doesn’t include the carnage caused by fast food. Yet, SRI funds don’t typically exclude Coca Cola, Pepsi, McDonald’s or other fast-food restaurant chains.

Such funds won’t align with everybody’s values. But for many, they offer a step in the right direction. What’s more, according to a research paper by RBC Global Asset Management, investors might not have to sacrifice performance for their ethics. The FTSE KLD 400 Index tracks the performance of socially responsible U.S. stocks. From April 1990 to April 2012, it beat the S&P 500.

Vanguard’s FTSE Social Index Fund Investors Shares (VFTSX) costs 0.22 percent per year. The fund’s holdings are screened for social, human rights and environmental criteria. It excludes companies involved with weapons, tobacco, gambling, alcohol, adult entertainment and nuclear power. It also has low exposure to oil and gas companies. It beat Vanguard’s S&P 500 Index (VFINX) over the past one-year, three-year, and five-year periods ending October 18, 2017.

That doesn’t mean it’s going to keep winning. But if it helps you sleep at night, it’s not a bad choice.

Vanguard’s - FTSE Social Index Fund Investors Shares (VFTSX) vs. Vanguard’s S&P 500 (VFINX)
Ending October 18, 2017

Average Compound Annual Return 1-Year 3-Year 5-Year 10-Year 15-Year
Vanguard FTSE Social Index (VFTSX) 24.02% 13.79% 15.88% 7.37% 8.82%
Vanguard S&P 500 (VFINX) 22.03% 12.93% 14.16% 7.40% 9.44%

Vanguard doesn’t offer an international SRI index fund. But Fidelity created one in May. Fidelity’s International Sustainability Index Fund (FNIYX) costs 0.30 percent per year. The firm’s U.S. Sustainability Index Fund (FENSX) costs 0.21 percent.

Investors shouldn’t try to guess which fund will win. Instead, SRI investors should own a piece of both. For added stability, they should also add a bond market index. I’ve included sample portfolios below. They represent different tolerances for risk.

After all, diversification might also help you sleep well at night.

SRI Portfolios That Might Help You Sleep

Fund Name Fund Code Expense Ratio Conservative Cautious Balanced Assertive Aggressive
Vanguard’s FTSE Social Index Fund Investors Shares VFTSX 0.22% 15% 25% 30% 40% 50%
or Fidelity U.S. Sustainability Index Fund FENSX 0.21%
Fidelity International Sustainability Index Fund FNIYX 0.30% 15% 20% 30% 35% 50%
Vanguard Short-Term Treasury Index VFISX 0.20% 70% 55% 40% 25% 0%
or Vanguard’s Total Bond Market Index VBMFX 0.15%

SRI Portfolios For Canadian Investors

Fund Name Fund Code Expense ratio Conservative Cautious Balanced Assertive Aggressive
iShares Canada Jantzi Social Index ETF XEN 0.50% 10% 15% 20% 25% 30%
iShares Core MSCI All Country World ex Canada Index ETF XAW 0.22% 20% 30% 40% 50% 60%
Vanguard Canadian Aggregate Bond ETF VAB 0.13% 70% 55% 40% 25% 10%
or Vanguard Canadian Short-Term Bond Index ETF VSB 0.11%

SRI Portfolios For British Investors

Fund Name Fund Code Expense ratio Listed Currency Conservative Cautious Balanced Assertive Aggressive
UBS MSCI United Kingdom IMI Socially Responsible ETF UKSR 0.28% GBP 15% 20% 30% 35% 45%
iShares Dow Jones Global Sustainability Screened ETF (Accumulating shares) IGSG 0.60% USD 15% 25% 30% 40% 45%
iShares UK Gilts 0-5yr ETF IGLS 0.20% GBP 70% 55% 40% 25% 10%
or Vanguard UK Gilt ETF VGOV 0.12% GBP

SRI Portfolios For Australian Investors

Fund Name ticker Symbol Expense ratio Listed Currency Conservative Cautious Balanced Assertive Aggressive
The Russell Australian Investment ETF RARI 0.28% AUD 15% 20% 30% 35% 45%
Beta Shares Global Sustainability Leaders ETF ETHI 0.59% AUD 15% 25% 30% 40% 45%
Vanguard Australian Government Bond Index VGB 0.20% AUD 70% 55% 40% 25% 10%

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This article contains the opinions of the author but not necessarily the opinions of AssetBuilder Inc. The opinion of the author is subject to change without notice. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

Performance data shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.

AssetBuilder Inc. is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and expenses carefully before investing.