In the world of investing, there is no shortage of options. There are various asset classes, risk profiles, and strategies. Everything from stocks to real estate to gold offers its own benefits and risks.
Investors looking to invest in ETFs can take their pick from a range of different funds with varying objectives and characteristics. However, not all ETFs are created equally. Some may not be as ethical as you think, so it’s important to understand what makes an ETF ethical before investing your money in one.
Here are some tips for finding an ethical ETF fund.
1. Check The Track Record
One of the best ways to determine whether an ETF is ethical is to check its track record. This will give you a good idea of how the fund has performed in the past and whether it is a good fit for your investment goals.
Understanding the track record of an ETF will also give you insight into the kind of strategy it uses and what makes it different from other funds. This will help you determine if it is ethical for your portfolio.
2. Research The Investments Being Made
In addition to understanding how an ETF has performed in the past, you also want to ensure that the investments being made in the fund are ethical.
It is important to learn about the specific ETFs you are considering investing in. Some funds may invest in stocks, bonds, and other securities. Other funds may invest in real estate or other commodities.
Knowing the investments made by your preferred ETF will help you determine if the fund is being invested ethically, determine its investment objective, and gain insight into how it is being managed.
3. Look At The Fund’s Investment Objectives
Investment objectives are used to describe the goals that an ETF is aiming to achieve. They are usually written out in the ETF’s prospectus, which can be accessed through the fund provider’s website. This will help you determine if the fund is fulfilling its ethical obligations and if it is a good fit for your portfolio.
Some funds focus on social responsibility, while others focus on producing high returns. Some funds may be partially focused on social responsibility, while others will completely focus on high returns.
Knowing the ETF’s investment goals will help you determine whether or not the ETFs are ethical and how they are being managed.
4. Check For Disclosure And Transparency
Another way to determine if an ETF is ethical is to check for disclosure and transparency.
Ethical ETF will be fully transparent and disclose their total holdings, the types of industries they invest in, and the percentage of investments made in various sectors. This will help you determine whether the ETF is ethical and a good fit for your portfolio.
5. Research The Asset Management Company
Another way to determine if an ETF is ethical is to look into the asset management company managing the fund. The asset management company managing the ETF will be responsible for how the fund is invested.
Familiarizing yourself with the workings of the asset management company will give you insight into what types of investments the fund is making, how it is being managed, and the individuals behind it.
Summing It Up
The ETF market is growing rapidly, with assets under management rising from $305 billion in 2014 to almost $500 billion today. But as the selection of ETFs continues to expand, so does the number of sub-standard products that offer little transparency or value to investors.
A handful of red flags have cropped up recently around certain ETF products. For example, some are actively managed rather than index-based, which many investors avoid due to higher costs and limited long-term performance history. Other funds only track small niche markets that are not worth investing in on their own.
That said, investors must be even more vigilant when it comes to ETFs that are also ‘ethical’ investments — a term that can be misleading because it implies they don’t come with any risks.
However, the ethics of an ETF fund can be hard to determine. It’s not like you can ask them directly about their ethics and get a straight answer. Hopefully, the tips listed above will help you make the right decision before investing in any type of fund, no matter its focus.
