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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some stocks of socially responsible companies to your portfolio but don't have the time or expertise to hand-pick a few, the iShares KLD 400 Social Index ETF (NYSEMKT: DSI ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.50%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed reasonably, inching ahead of the S&P 500 over the past five years and slightly lagging it over the past three. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why socially responsible?
Those who assume that socially responsible investors are doomed to inferior returns have often been proved wrong, as socially responsible investing (SRI) can be quite competitive.
More than a handful of companies with socially responsible bragging rights had strong performances over the past year. Gilead Sciences (NASDAQ: GILD ) , for example, more than doubled in value. Gilead has investors hopeful about its oral hepatitis C drug, sofosbuvir, which has cleared four phase 3 trials and received priority-review designation from the FDA. The company is also well known for its success with HIV drugs, though competition there is growing. The stock may not look like a bargain, with a P/E ratio in the 30s, but its five-year projected earnings growth rate is steep. Its second quarter featured product sales up 14% over year-ago levels. The company has helped lower prices for some of its products so that those with limited means might afford them.
Cisco Systems (NASDAQ: CSCO ) surged about 56%, with many excited about its $2.7 billion acquisition of network security specialist Sourcefire. Cisco has been touted repeatedly as a one of Fortune's "Best Companies to Work For," and about 77% of its workers would recommend their employer to a friend, per glassdoor.com. The stock yields 2.6% and the company reports its quarterly earnings tomorrow, with some bullish analysts having already upgraded the company.
United Parcel Service (NYSE: UPS ) gained 19% and, with a yield of 2.8%, is trading near a 52-week high. The continued growth of e-commerce bodes well for the company, despite the recent move toward increased taxation of online purchases. The company is also hopeful about 3-D printing, which it will be offering in its stores. Meanwhile, though, UPS has been experiencing weakness in its high-margin next-day service. The company has been reducing its greenhouse gas emissions in part by reducing its miles driven, thanks to smarter routes.
Other companies didn't do quite as well over the last year, but could see their fortunes change in the coming years. Storage giant EMC (NYSE: EMC ) gained about 1% over the past year, It has recently initiated a dividend and yields 1.5%. It has been tapping the bond market for billions, in part to finance the repurchase of close to 10% of its shares. The company stands to profit from the rapidly growing cloud-computing and "Big Data" arenas, and it holds an 80% ownership stake in virtualization specialist VMware, too. EMC has been posting strong numbers and outpacing rivals on many counts. It offers a "dashboard" detailing its progress on various socially responsible counts.
The big picture
Demand for socially responsible investments isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.