Given the current market volatility and uncertain economy, investors are looking for opportunities to grow their money responsibly. Exchange-traded funds (ETFs) offer several benefits for most investor profiles as an asset class. They’re accessible, cost-effective ways to get exposure to various sectors and geographies with a single trade.
With that in mind, there are various types of ETFs available today. Some of them have more favorable qualities than others. For example, some might be broad market neutral, while others could be sector-neutral or ESG-focused.
This blog post will look at what those terms mean and why they matter when picking ethical ETFs.
Table of Contents
What Is an ETF?
An exchange-traded fund (ETF) is a fund that owns assets (e.g., stocks, bonds, commodities, etc.) and breaks up ownership of those assets into shares. ETFs trade on stock exchanges, like stocks, do, and you can buy or sell them whenever you want.
ETFs are designed to track the performance of a specific index or set of assets. This means that ETFs are passively managed, which means that they’re designed to track the performance of a specific index rather than actively managed funds with a team of fund managers who decide when to buy and sell assets.
An Overview of Ethical ETFs
Investors who want to pursue an ethical investment strategy have options regarding ETFs. One is to look for ETFs with a positive social and/or environmental impact. There are a few different types of funds that fall into this category.
An example of a broad market-neutral fund is the iShares MSCI USA ESG Select ETF. This fund is market-neutral because it doesn’t focus on any specific sector or industry but on overall company quality. A sector-neutral fund, on the other hand, is a fund that doesn’t focus on any particular industry, such as the Schwab U.S. Large-Cap Equity ETF.
How to Find Ethical ETFs
When researching funds to add to your portfolio, it’s important to understand the fund’s investment objectives and strategies. One way to learn more about the funds you’re considering is to look at the fund’s fact sheet. This document will provide you with a lot of useful information, such as the fund’s investment objectives, strategies, risks, and fees.
Another way to learn about a fund is to check out its website. You should be able to find information about the fund’s holdings, performance, and any other relevant details you’d like to know about the fund.
Benefits of Ethical ETFs
The most obvious benefit of investing in ethical ETFs is that you can feel good about your investments. Ethical ETF investing gives you the chance to invest in companies that are making a positive impact on society and the environment.
Another advantage of ethical ETFs is that they can help diversify your portfolio. Because these funds are invested in companies across different industries and sectors, they can help balance out your portfolio by adding a little bit of everything. Finally, ethical ETFs are cost-effective.
In Conclusion
ETFs are advantageous because they’re easy to understand, transparent, efficient, and tax-friendly, making them a convenient choice for investors. However, choosing an ETF is a decision that should not be made lightly.
Before you decide to invest in any ETF, you should make sure that you understand what it invests in, who manages the fund, and how it makes money.
So, if you’re looking for ways to invest responsibly and make a difference, ethical ETFs may be a great option for you.
