4 Funds for Building a Sustainable Portfolio
Our analysts say Vanguard FTSE Social Index, TIAA-CREF Social Choice Bond, Amana Growth, and Amana Income would make great core holdings.
Jon Hale: Sustainable investing involves the use of environmental, social, and corporate governance, or ESG, criteria to evaluate investments or to assess their societal impact. It's not hard to build a portfolio of funds around sustainable investing because the approach is used across a variety of investment categories. For investors interested in building a sustainable portfolio, our analysts have identified several funds that would make great core holdings.
Alex Bryan: Vanguard FTSE Social Index is one of the cheapest and best diversified ESG funds around. It relies primarily on negative screens to filter out stocks with businesses tied to tobacco, alcohol, gambling, nuclear power, and adult entertainment. Stocks must also have a baseline level of diversity to be included in the portfolio. As a result of these exclusions, the fund does have certain sector tilts; it tends to underweight energy and industrial stocks and overweight technology and financial services stocks, which gives it a bit of a growth tilt. It still provides a pretty well diversified portfolio covering about 70% of its selection universe. It can allow some firms with mediocre ESG characteristics into the portfolio, but still does a pretty good job of avoiding the worst ESG offenders. Its low fee and broadly diversified portfolio should continue to serve investors well.
Jon Hale does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.