International SRI Returns comparable with Traditional Investments

Due to the rise in Commodity prices and sectors such as solar energy in recent years, Socially Responsible Investing (SRI) Exchange Traded funds (ETF) have outperformed abroad. Internationally SRI strategies have performed much better.

Socially responsible ETFs that invest in stocks averaged a 15.5% gain for the year ended March 29, compared with a 13.8% gain for the non-SRI variety. They also outperformed on a three- and five-year basis. International-stock ETFs that practice SRI also topped active managers, over one, three and five years. Whether a socially responsible ETF’s returns are comparable with those of funds that don’t follow SRI principles, evidence shows is possible.

SRI funds are part of another trend known as sustainable investing, which invests not just in companies with a morally acceptable business, but in companies that are responsive to their employees, customers and communities. Traditional screens still apply to SRI companies, for example, businesses involved with alcohol, tobacco, gambling and firearms are typically excluded. David Schoenwald, who co-founded the New Alternatives Fund Inc says, he avoids companies with poor labour practices, companies that produce nuclear energy, coal and weapons, and those that test on animals or have pollution issues, narrowing down the list considerably. Many socially responsible ETFs include names such as “IShares MSCI KLD 400 Social Index”, which follows the broad, socially responsible U.S. benchmark of the same name. Many staples of the “Standard & Poor’s 500-stock index” are included, its top five positions recently belong to: “Microsoft Corp.”, “International Business Machines Corp.”, “Procter & Gamble Co.”, “Johnson & Johnson” and “Wells Fargo & Co.”

There are common misconceptions of SRI. Socially responsible funds still suffer from a perception among investors that they are too restrictive about the types of companies they invest in. With roughly $100 billion invested in socially responsible investing, or SRI, these funds are still a small portion compared with the $7 trillion invested in all stock mutual funds and ETFs. One reason for the ETFs’ outperformance abroad is the rise of commodity prices and alternative energy, such as solar, in recent years. George Gay, chief executive of First Affirmative Financial Network says: “International markets, especially emerging markets, have a much higher exposure to commodities and energy”.

“There’s an argument to be made that these companies will do quite well over the long term,” says Michael Johnston, senior analyst at ETF Database. “They’re likely to avoid litigation, environmental disasters, bad PR. “Even though returns for socially responsible ETF’s that invest in the U.S. have not performed as well, rising 14.2 % on average, the international SRI ETF strategies have performed well.

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