If you like exchange-traded funds (ETFs) -- those strange beasts that seem to be part stock, part mutual fund -- who could blame you? They offer many attractions to investors frustrated by traditional index funds:
- You can buy or sell small amounts, even one or two shares, for a few hundred dollars or less. (Mutual funds sometimes have minimum investment requirements of $3,000 or more.) Of course, such tiny trades aren't always smart, given the broker fees you'll incur.
- You can manage your taxes better, since ETF tax effects happen only when you sell.
- ETFs are generally less expensive, with expense ratios (annual fees) often less than 1%, whereas mutual fund fees often exceed 1%.
Perhaps you're also interested in socially responsible investing (SRI), and have sought companies that have good records on environmental and social issues. Green Mountain Coffee Roasters
For investors seeking someone to help them with SRI, socially responsible mutual funds use various strategies to pick stocks. Unfortunately, many SRI funds don't offer sterling performance.
Best of both worlds
The good news is that those who prefer ETFs to funds, and who gravitate toward SRI, can combine those two aims with socially responsible ETFs. Here are two possibilities:
iShares KLD 400 Social Index Fund (DSI): You can track the Domini 400 Social Index with this ETF. It looks for companies with good records on social, environmental and governance matters, and counts Microsoft
(NASDAQ:MSFT)and Johnson & Johnson (NYSE:JNJ)among its top picks.
iShares KLD Select Social Index Fund (KLD): This ETF tracks the KLD Select Social Index, which aims to perform much like the S&P 500 while seeking companies strong on social, environmental and governance matters. The fund owns many prominent S&P components, including Procter & Gamble
(NYSE:PG), IBM (NYSE:IBM), and Chevron (NYSE:CVX).
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