Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you want to invest in socially responsible companies, the iShares MSCI USA ESG Select Social ETF (AMEX: KLD) could save you a lot of trouble. Instead of trying to figure out which companies are most responsible, and which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
The fund tracks the MSCI USA ESG Select Social index, which screens for companies with good records on environmental, social, and governance, or ESG, issues relative to their peers and the overall market. It then weights them in the index according to how strong their scores are.
The basics
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%.
This ETF has performed reasonably well, beating the S&P 500 over the past five years. 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.
With a turnover rate of 35%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several of the companies that meet the ETF's standards have performed well over the past year. Spectra Energy (NYSE: SE), a natural gas specialist, gained about 30%. If prices for natural gas remain low, growing demand could serve Spectra well. In partnership with others, it's investing in expanding pipelines to connect with shale-gas fields. Intel (Nasdaq: INTC), meanwhile, gained about 25%, with bulls excited about its new line of Ultrabook laptops. Its heavy R&D spending bodes well for its future, too, and even after last year's gain, its stock still looks cheap.
Other companies haven't done as well lately but could bounce back in the years to come. Japan-based insurer AFLAC (NYSE: AFL), for example, shed 18%, partly on Europe's woes, though it does no business there. There's a lot to like about it, such as its brisk premium growth in Japan, its solid dividend yield of around 3%, and its seemingly low price lately. Eaton (NYSE: ETN), down 2%, has posted some strong revenue and earnings growth recently, and is deploying R&D resources into new technologies to boost energy efficiency in power systems and vehicles.
The big picture
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. And socially responsible companies can be very profitable, too.
Learn about the 5 ETFs That Could Soar in 2012. And if you're looking for some great investments beyond ETFs, consider these 12 Dividend Stocks for 2012.
