Recent headlines, including those out of Arizona, and the February debut of the the Workplace Equality Portfolio (NYSEArca: EQLT) have again put the spotlight on the concept of socially responsible investing.
EQLT’s “screening criteria generally include mandatory language in a company’s equal employment opportunity (EEO) statement prohibiting discrimination based on sexual orientation and gender identity, offering health benefits to same-sex partners or spouses of employees, along with other corporate benefits and privileges. Other screens are performed with the goal of eliminating companies that would detract from the Index such as companies in bankruptcy or reorganization,” according to ALPS. [Evaluating the new Workplace Equality ETF]
While EQLT is the newest entrant to the socially responsible ETF field, at least two rival funds have lengthy track records. The $250.5 million iShares MSCI USA ESG Select Social Index Fund (NYSEArca: KLD) is over nine years old while the $336.5 million iShares MSCI KLD 400 Social ETF (NYSEArca: DSI) will celebrate its eighth anniversary later this year.
As is often par for the course with socially responsible funds, both KLD and DSI are heavy on technology stocks with that sector accounting for 24.6% of DSI’s weight and 22.5% of KLD. American Express (NYSEArca: AXP) and Apple (NasdaqGS: AAPL), both of which garner four-star ratings from S&P Capital IQ, are top-10 holdings in KLD. So is Dow component International Business Machines (NYSEArca: IBM), also rated four stars by S&P Capital IQ.
KLD “more closely mirrors the sector representation in the broader MSCI USA Index and only excludes tobacco companies from the list of constituent candidates,” said S&P Capital IQ in a recent research note, while DSI’s holdings “meet MSCI’s criteria for a range of environmental, social and governance issues (ESG). Companies engaged in the sale of alcohol, tobacco, nuclear power and military weapons are excluded. Relative to the S&P 500 Index, DSI has less exposure to Industrials and Utilities and more exposure to Information Technology.” [A Look at Socially Responsible ETFs]
“Both DSI and KLD receive neutral ranking inputs for S&P Capital IQ STARS and S&P Capital IQ Fair Value, but positive inputs for S&P Capital IQ Quality Rankings and for modest standard deviations,” according to the research firm.