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 (NYS: 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 ("ESG") issues relative to their peers and the overall market. It then weights them in the index according to how strong their scores are.
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 occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has, overall, roughly kept pace with the S&P 500 over the past three and 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.
What's in it?
Plenty of companies that pass various socially responsible investing screens had strong performances over the past year. Apple (NAS: AAPL) is a powerful example, surging some 66%. Bulls are anxiously awaiting the iPhone 5 and a possibly revolutionary iTV, and arguments can be made that the stock is still inexpensive, despite its run-up. According to my colleague Dan Caplinger, it actually comes close to being a perfect stock.
Spectra Energy (NYS: SE) , up 13%, has posted several quarters with disappointing earnings and revenue numbers. While the low price of natural gas these days has hurt some energy companies, it has actually helped Spectra, which has benefited from the increased demand for natural gas, as it serves that demand. The company is expanding its capacity, is enjoying accelerating revenue and earnings growth, and is a solid dividend payer, as well, recently yielding close to 4%.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Commercial power system specialist Eaton (NYS: ETN) and medical-device maker Becton, Dickinson (NYS: BDX) , for instance, both shed 12%. Eaton, like its peers, has seen demand slow in Europe and China, but business has picked up in the U.S., as our economy starts showing signs of life. Becton, Dickinson bulls are excited about its FocalPoint medical imaging system, which offers a faster and better way to find abnormal cells in people. Its net profit margins are attractive, too, recently topping 15%, and it's selling off most of its labware unit in order to focus more on biosciences and instrumentation.
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.
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At the time thisarticle was published Longtime Fool contributorSelena Maranjian, whom you canfollow on Twitter, owns shares of Apple, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio. The Fool owns shares of Apple.Motley Fool newsletter serviceshave recommended buying shares of Becton, Spectra Energy, and Apple, as well as creating a bull call spread position in Apple. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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