When you think of exchange-traded funds (ETFs), the first thing that comes to mind is the numerous equity and fixed-income ETFs available on various global stock markets.
While there are a fair number of “mainstream” ETFs with stocks, bonds, and other similar assets, the scope goes much deeper than that. Various asset classes like real estate and natural resources have dedicated ETFs, which means investors can easily gain exposure to those sectors. There’s also an increasing array of ethical ETFs that exclude companies based on certain factors such as animal testing or GMOs.
As you might expect, investing in ethical ETFs presents its own challenges. This article will explore ethical ETFs and how to invest responsibly in them as part of your broader portfolio.
What Are Ethical ETFs?
An ethical ETF is an exchange-traded fund that does not invest in companies involved in certain industries or activities that the fund’s managers deem unethical. For example, an ethical ETF might not invest in companies that produce firearms, tobacco products, genetically modified organisms, or any other product that the fund’s manager believes is unethical.
Why Invest in Ethical ETFs?
While ethical ETFs are a relatively new asset class, they have quickly gained popularity with investors who want to put their money in companies that meet certain ethical criteria without compromising their financial goals. Ethical ETFs enable socially responsible investors to meet their fiduciary duty to put clients’ interests above their own by investing in companies that do not produce certain products or services.
So, if you’re an ethical investor who is not willing to compromise your values, ethical ETFs are an easy way to make sure your portfolio does not include companies that produce certain products or services. That way, you can avoid companies that you wouldn’t want to invest in, even if it meant missing out on some growth opportunities.
How To Invest in Ethical ETFs
If you’re interested in investing in ethical ETFs, you should research to see which ones make sense for your portfolio. There may be several ethical ETFs that meet your investment goals—you just have to find them.
You can start by looking online at the various ethical ETFs that are available. You can also use a screener to find the right ETFs for your portfolio.
Working with an investment broker can also be very convenient, especially if they have experience with ethical ETFs. They can help you make the right investments depending on how much you’re willing to invest, your investment goals, and whether you’re investing for the long or short term.
However, one thing you’ll have to consider is the ETF’s fees and how they are calculated. For instance, all ETFs charge a management fee known as the expense ratio. This fee is taken from the fund’s profits and helps cover operational expenses.
The Final Words
Now that more and more people have started waking up to the reality of climate change and other social issues, investing in companies with a positive impact on society has become extremely popular. The market for ethical ETFs has grown rapidly over the past few years, and it shows no signs of slowing down.
Right now, there are several different types of ethical ETFs available on the market. While most of them screen for certain criteria—such as the absence of animal testing or partnership with non-profit organizations—there is still plenty of variation between them.
Hopefully, the information highlighted above will help make it easier for you to put your money where your mouth is (or values, in this case).