Thursday, February 24, 2005

ETF for Socially Responsible Companies: KLD

Being Socially Responsible while investing in stocks gives you a good
feeling and it may matter a lot to you if you are averse to industries
such as tobacco, defense and energy. However, the reality is that if
you take those industries out of your portfolio, your investment may
suffer from high risk of less diversification. Also, recently these funds
lagged the market because they are usually underweight in the energy
sector, which has posted strong gains with oil prices rising dramatically.
Also, these funds never utilized the tobacco company Altria's (MO)
recent gain and regular dividend. But money may not be everything in
investment and some people argue that socially responsible companies,
by their nature, are usually solid investments and in long term they
really pay off.

Two of the respected index funds in this area are: Vanguard Calvert
Social Index Fund (VCSIX) and the TIAA-CREF Social Choice (TCSCX).
In late January, Barclays Global Investors launched the iShares KLD
Select Social Index Fund KLD , the first socially responsible ETF.

As a comparison, KLD's expense ratio is 0.50 percent of assets, while both
these Mutual funds have fees of 0.25 percent and 0.27 percent. Also,
unlike no-load mutual funds, ETF investors must pay broker commissions
to buy and sell shares. This is somewhat disadvantageous if you plan to
dollar-cost average.


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