• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / ETFs

Rules of the Game: Responsible Investing

No fund is a perfect cure-all for social ills.
By KATE STALTER Jun 14, 2013 | 11:00 AM EDT
Stocks quotes in this article: HBC, BP, VOD, SAN, WBK

I'll admit it. For years, I was a socially-responsible skeptic. What I mean by that is: I was not impressed by the lackluster returns found in so many of the feel-good socially-responsible investments available.

I felt they were mediocre products, created to pander to the growing class of investors who want to ensure they have enough money for retirement, but also want to make a positive contribution to important social causes and the environment.

Well, I've become less of a skeptic lately. Part of the reason, no doubt, is because I moved to Santa Fe a few years ago, and I'm now surrounded by plenty of people for whom social consciousness is at the center of their lives. Like other Americans, these folks are concerned about sustainability in their non-working years, as well as sustainability of the environment.

I've begun recently to explore some of the socially-responsible offerings that seek to offer sound investment returns along with a portfolio of stocks that meet stringent screening requirements. For today's progressives, screening issues can include the production of landmines or weapons, unfair labor practices (including child labor) or business with certain unsavory regimes.

Obviously, by eliminating companies through a strict screening process, you also reduce the potential for diversification. In addition, many high-performing stocks don't make the cut. Those are a couple reasons why many of the socially responsible and sustainable funds underperform.

As many of the readers know, I generally prefer ETFs to mutual funds, for a variety of reasons. They are more cost effective and trade during market hours, unlike mutual funds. In addition, more than 80% of mutual fund managers can't beat the S&P 500 in any given year.

But that doesn't mean I have given up entirely. One fund from the socially responsible arena that I have been eyeing is the Dimensional International Social Core Equity Fund (DSCLX). This is a new fund, which made its debut just last year -- so we don't have that three-to-five-year track record (at a minimum) that many investors seek. Like all Dimensional funds, it's only available through advisors, not over the counter.

The fund focuses on developed markets, with an extra emphasis on value and small-cap stocks. The most heavily represented regions are the United Kingdom, Western Europe, and Japan.

You may or may not be surprised, but the top holdings are not a bunch of unknown, third-rate companies that would make a hard-nosed trader chortle. The fund holds heavy concentrations in companies including British bank HSBC (HBC), BP (BP) (environmentalists might bristle at that choice, but there are other funds geared toward sustainability), Vodafone (VOD), Royal Dutch Shell (RDSA), Mitsubishi Financial, Zurich Insurance, Allianz (AZSEY), Banco Santander (SAN), Australia and New Zealand Banking Group, and Westpac Banking (WBK).

In addition to the social screens overlaid onto the investments, it's crucial to screen quantitatively for fundamental characteristics.  In my judgment, too few socially responsible fund managers have rigorously applied quantitative screens to their stock picks.

No fund is a perfect cure-all for all the social ills that bother us. After all, this DFA fund contains dirty oil companies -- something devoted environmentalists wish could instantly be replaced by windmills and solar power. But if it's possible to make incremental improvements to your actual portfolio and stick to your investment philosophy that will bring you the desired results, that doesn't sound bad.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Stalter held no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | ETFs | Funds | Stocks

More from ETFs

Now It's All One Big Macro Trade

Maleeha Bengali
May 19, 2022 9:00 AM EDT

The liquidity that pushed up all risky assets is now the leading factor in taking them down.

Stocks May Rally, but Bear in Mind We're Still in a Bear Market

Bob Byrne
May 18, 2022 8:30 AM EDT

With that warning given, let's check out possible trades involving a big drugmaker and a semiconductor giant.

Here Are Ways to Gain Emerging Market Exposure While Sidestepping China Risk

Mark Abssy
May 17, 2022 11:15 AM EDT

If you'd prefer to avoid the headline risk that comes with investing in China, here are a couple ETFs to consider.

Pivotal Tuesday, Buffett's Buys, Niagara Falls? Profit Margins, Trading Chevron

Stephen Guilfoyle
May 17, 2022 7:26 AM EDT

As investors ran away from equities earlier this year, Warren Buffett ran towards the market.

Is a Stealth Bull Market Developing in These Long-Suffering Sectors?

James "Rev Shark" DePorre
May 16, 2022 11:10 AM EDT

I have my eye on relative strength in groups that have lagged for a very long time.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 01:44 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10 Portfolio

    We're making a series of trades here.
  • 03:07 PM EDT PAUL PRICE

    Why Is Walmart Down Big Today?

    Besides its poor earnings report Walmart was way...
  • 07:14 PM EDT PAUL PRICE

    A New, Very Scary Movie

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login