An exchange-traded fund (ETF) is a basket of stocks or other assets that can be traded easily as one unit. They are cheap, transparent, and easy to invest in —and the demand for them is growing.
But how can you tell if an ETF meets your ethical standards? Here’s a breakdown of how you can find out if an ETF investment is ethical, including a list of factors you should check before you choose an ethical fund.
How To Find Out if Your ETF Investments Are Ethical?
● Research the Underlying Investments
An ETF holds all the stocks in the basket, so if one of those companies is unethical, so is the ETF. That said, you need to check the fund’s underlying investments to find out what’s in your ETF. You can do this using an online tool like fund explorer or finbox. Alternatively, you can look at the ETF’s top ten holdings. Many ETFs break down their holdings by percentage, so you can get a good sense of the fund’s composition.
● Assess the ETF’s Management
When assessing the management of the ETF, it is essential to understand who the fund manager is. The fund manager decides how the fund is invested and how it is managed. For example, the manager decides which stocks are held in the ETF and how much of each stock is held. You should consider the fund manager’s track record and investment philosophy when assessing the management of the ETF.
● Talk to an Investment Broker
As you choose an ethical fund to invest in, you can talk to an investment broker and see what they recommend. Their advice will come in handy as you try and familiarise yourself with different ETFs to invest in.
What To Look For in a New ETF
Transparency is a very important trait to consider in an ETF. It will help you know how the fund is managed, who does the managing, and the methodology for the fund. The methodology should be clear and include a social screen for companies on the blacklist.
Check Their Reviews
You can also check online reviews to see what other investors think of the ETF. This can help you better understand how the underlying investments are performing and what the fund is like to invest in.
Watch Out for Hidden Fees
Some funds have high fees, which will eat into your returns and reduce the value of your investment over time. You can look at the expense ratio to see how much the fund will cost you.
As you might expect, low-fee funds are generally the best option. Find out what the fund’s annual fee is and compare it to other funds’ fees. You can also check if the fund offers a lower fee option.
Summing It Up
As pointed out earlier, most ETFs have a set expense ratio to help investors know how much they are paying to invest in that fund. However, since expense ratios only go so far, investors should look closely at other factors to determine which ETFs are worth buying.
Each has its own pros and cons based on your personal values as well as your risk tolerance when it comes to investing and potential returns on investments. So, take the time and conduct diligent research so you can make a well-guided decision.