Every investor likes the idea of a socially responsible exchange traded fund (ETF). So what exactly constitutes one?
An ETF that falls into this category holds stocks of companies that have positive environmental, social or political or corporate governance policies. Seeking Alpha says that socially responsible ETFs avoid stocks that come from certain industries such as gambling, tobacco stocks. They also typically avoid stocks related to companies that are tied to certain countries such as Sudan.
These ETFs work well in a core U.S. stock fund portfolio because they are broad-based. A socially responsible ETF can be tough to incorporate into a diversified portfolio if it is not clear which stocks it holds. The iShares KLD 400 Social Index (DSI) is an equivalent to the S&P 500 for investors who don’t want to contribute to "unethical" companies.
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