Socially Responsible Portfolio

My current portfolio looks like this:

UBS ETF (CH) MSCI Switzerland IMI Socially Responsible 40%
UBS ETF (LU) MSCI Emerging Markets Socially Responsible UCITS 20%
UBS ETF (LU) MSCI USA Socially Responsible UCITS ETF 20%
UBS ETF (LU) MSCI EMU Socially Responsible UCITS ETF 20%

For me it’s important to have a sustainable investment portfolio, I don’t want to invest in companies that destroy our planet or peoples lives, my total TER is 0,3%.

I also don’t want to own any US ETFs because I really don’t trust their government/tax laws.

Any suggestions on investments? I’d like to invest more directly in projects in the future.

From what I’ve experienced the consensus on this forum is to invest broadly and globally. You’re overweighting Switzerland with 40% quite a lot, usually referred to as “home bias”, which people tend to minimize.

Other than that you’re probably aware that those products are very expensive compared to your more traditional indexes, but I guess that’s the price you have to pay if you want to invest the way you like to.

One thing I’m not sure about is how Luxemburg is with double-taxation. That’s why most funds are located in Ireland as those have awesome tax-treaties with many countries so you might lose some more money due to irrefundable taxes.

Nestle is socially responsible?

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My impression of investing advice by @hedgehog :wink:

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By definition the socially responible ETF exclude companies from the following areas:

  • Alcohol
  • Gambling
  • Tobacco
  • Military weaponry
  • Civilian firearms
  • Adult entertainment (Why? :slight_smile: )
  • Genetically modified organisms
  • Nuclear energy

Therefore Nestle is not excluded. As far as I know there are strikter indices, but not for global ETFs. Or there are managed actively and therefore much more expensive.

VT or equivalents are a sane default choice for most investors

And why do you have to agree with this definition? You’re not going to invest in some of the most profitable market sectors just because some bankster told you not to? And you’d rather pay a premium TER to that bankster instead? Market sectors are not all black and white, some of the companies in the listed sectors are IMHO quite ok ethically and very profitable, and there’s plenty of companies outside of these sectors that do evil things, some more often than others and if you dig deep enough you can probably find some dirt on any large enough corporation.

Ultimately, unless you command hundreds millions of dollars AUM your decision to not invest your pennies in some sectors is simply not going to f’ing matter. Find something else to do in the name of sustainability. Plant a tree, adopt a kid, or something…

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Socially Responsible Investing is a label that you buy at increased cost for something that doesn’t change anything and just make you feel better. Do you think you’ll bankrupt coal and oil companies with your decision? I can’t even imagine how big momentum you’d have to have in this movement to make an impact on the global market.

Have you considered Effective Altruism? It’s more reasonable - in short, make yourself rich by traditional means and afterwards use that money to support socially responsible organizations. Just like Gates and Buffet did.

Well, again, you pay more for this decision.

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Hi Raphael,
“Socially responsible” are two nice words, but they are a bit wrongly used here IMHO.

What is your definition of socially responsible? Mine is different than the one your bankers are using. They should probably call it something else. Also “destroy our planet” isn’t really the best way to define those categories you mentioned. To be honest it sounds more religious than socially responsible.

Also such an high TER? Does it cost so much to scan a list of companies and filter it by category?

Ok, maybe I can bring some clarity to that as my company manages some funds that have a “green” label.

Usually, those strategies are referred to as “ESG” for Environmental, Social and Governance oriented. As was mentioned before, everybody has differing opinions on what that should be, so read carefully what you are buying.

Just excluding some stocks based on their industry or business model is probably the easiest “quick and dirty” solution. Other models try to influence businesses or pressure them through voting rights. Or, you buy only firms that “do good” if you like to really feel good about your investments. There is no stringent research if those ESG strategies add or detract from standard stock market returns, you will find studies that confirm one of those outcomes.

If you buy the above mentioned ETFs you can be pretty sure that it is a simple screen that excludes certain industries (alcohol, tobacco, gambling, etc.). Personally, I would not invest the majority of my money in such strategies. The ETFs are too simple and the active strategies are too expensive. However, most asset managers now have to adhere to the PRI (Principles for Responsible Investing) anyway, a lot of institutional clients will not invest with you if you a not a signatory of the UN PRI charter. Also, most clients automatically exclude certain investments, for instance producers of Landmines.

And, if you don’t give a shit there are even ETFs for “sin stocks”, that invest only in companies that make high margins in alcohol, tobacco, sex or firearms:
WSKY - as the name says, “spirited funds” ETF
BJK - gaming ETF
ACT - tobacco, marijuana and alcohol

So, you can choose if you want to embrace the dark side or not…

All the best
Gondolin

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I recently got so XAR for the lolz.

Weapons are ok but tabacco is where I draw the line, no idea what that tells you about me.

Aerospace and defense :policeman: sounds legit, as long as it’s only defense and no attack weapons, right? :grin:

Well they do make some space stuff too XD

Interesting discussion that shows that sustainable or socially acceptable is a definition with variable geometry.
One question comes always in my mind: why investing in socially responsible ETF, you expect a better long term return or you want to sleep without bad feelings?
We could discuss if on the long term the consequence of civil nuclear energy is better or worst than climate change due to CO2 from fossil fuel.
But the final question for me is who is really responsible of the consequence, the investor or the consumer? In this debate I have the feeling that once more the investor is described as a greedy capitalist ready to sell the planet for some more profit. What about the responsibility of the consumer of fossil fuel, long distance travel or precious metal and rare earth? In a market there is always two people and I doubt the the investor is more to blame than the consumer of some questionable products.
As an investor (or indirectly, the investment company providing ETF) you can ask some question about the business continuity policy of the companies you have invested in. This is probably the most constructive approach.

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I am also trying to invest a bit more sustainable, but I am trying to put on a balance the TER vs Sustainable score as well. For example, my portfolio (on paper) is looking like that now:

35% US ETF - 0.12% US - ESGV
35% Rest of the world - 0.15% US - VSGX
10% Swiss ETF - 0.10% CH - CHSPI
10% Bonds - 0.05% US - AGG
10% Focused ETFs - 0.50 % US - ICLN, CRBN, SDG, IRBO

The ESGV and VSGX are the Vanguard ETFs, screening out some industries. But it is not integrated with the ESG process, because I found those ETFs have the TER too high and I still could find issues with the companies in there…so until they fix the ESG integration I am not ready to pay the higher costs (like paying the high price to invest sustainable in Nestle…).

The CHSPI is not even screened out, but I find the UBS products way too expensive for only screening out some companies and still contains lots of companies I would not want to invest in. So, until I find an alternative, I will use the iShares product.

The AGG is low cost aggregated bonds, mostly in US, where there is a positive interest (still)…even I am still thinking if makes sense to invest anything in bonds now, when FED is turning back the QE, so maybe later on will reduce the interest rate…maybe I will just have the cash sitting around there.

The focused ETFs are more high priced, but only 10% from the investment, where I rotate some ideas I consider might be successful in the future, but with higher risks.

But, at the end, I would like to invest sustainable, but not just to pay a very high price to some ETFs labeled as sustainable, but containing lots of companies which I do not consider sustainable. Till the ESG integration process will be better, I will invest in lower cost ETFs which will only screen out some industries (even…only for screening out some industries…still charges quite a bit compared to the original ETFs…but at least low enough for me…).

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More like a politically correct Portfolio than a socially responsible one…

OGMs and Nuclear are not popular all right, but that doesn’t make them “socially irresponsible”.

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It’s a pretty interesting topic, thanks. Are you aware of the ideas from https://www.aqr.com/Insights/Perspectives/Virtue-is-its-Own-Reward-Or-One-Mans-Ceiling-is-Another-Mans-Floor?

My understanding is that if it’s working you should expect lower return (and that the people not doing “responsible” investing will get the money instead).

As you and Bibi4 noted, it’s usually hard to agree 100% (or even 50%) with the SRI definitions that are used.

Regarding AGG, I assume you don’t care about the currency risk? (currency volatility will dominate the returns).

Well…this is one of the main issues…sustainability can be interpreted in many ways, like environmental impact (CO2, intensive farming, pollution, chemicals…), social inequality, wealth distribution…and on one side, one company can have a big impact on environment, but have good score on social inequality, so overall, will be fine and get into the index.

So, I think it is important to see the companies inside the “sustainable index” and decide on your own if you would like to invest in them, depending what sustainability is for you…

Yes, I do expect lower returns now (plus the slightly higher TER) and maybe in the mid-term future more returns, but not from these ETFs…but more for a better integrated ESG ETFs, mainly because I expect more regulations and higher taxes in a mid-far future.

Well…here I have some more issues and indeed currency risk is as well quite important. But, I think also Europe is not doing great and Switzerland does lot of business with EU, so it can go both ways. But here I tend to keep more cash and use it when stocks get cheaper…still thinking to it.

Do you see any good reason nowadays to hold bonds?

My personal opinion is that if you care about EUR or CHF, holding cash it likely better since risk-free bonds have negative yields.

My 5 Rappen:

In my opinion it is very well possible that, if you want to do good in the world or prevent harm, a socially responsible portfolio isn`t especially conducive to either goal.

  • It’s a lot of work and needs quite a bit of skill to screen stocks/indices for your understanding of ‘socially responsible’.
  • You are likely to get lower returns with a socially responsible portfolio than from a standard one.
  • Socially responsible investing might not as big an effect as you`d hope for.

You might get lucky with the first one, if your values happen to align with an ETF like the one from UBS you mention.
But for me, and I suppose for many others, these portfolios might not align.

  • Alcohol (Maybe a good thing.)
  • Gambling (Feel pretty neutral about it.)
  • Tobacco (Probably a good thing, but if excluding all nicotine products maybe not something I care about greatly.)
  • Military weaponry (Probably a good thing.)
  • Civilian firearms (A good thing.)
  • Adult entertainment (Feel pretty neutral about it.)
  • Genetically modified organisms (Most likely a bad thing, would like to support certain GMO-companies (over others).)
  • Nuclear energy (Same as with GMO.)

For me, not investing in companies that are strongly involved with factory farming would probably trump all the listed points.

Let`s say you care a lot about climate change.
I think your choice is between

  • spending time searching for a green fund, which seems sensible to you and then getting less returns (in expectation)
  • investing in a standard fund, donating the additional money you get and the value you place on the time you didn`t spend researching this topic to an effective climate change charity (e.g. "Coalition for Rainforest Nations)

Obviously, which of these options is better at producing your end goal depends on a lot of things (how effective are those climate change charities vs. socially responsble investing, roi for green vs. standard etf, how much time do you spend with research and how much do you like spending your time like that etc.).

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