Boston Gal's Open Wallet

For ethically minded investors, the fast proliferation of ETFs in recent years has put powerful new tools in their wealth-building, world-improving toolboxes. Over the past 2-1/2 years, at least a dozen ETFs with a socially responsible angle have appeared in the marketplace. Two just launched in June: PowerShares Global Clean Energy Portfolio and the Claymore/KLD Sudan Free Large Cap Core ETF. The latter shuns companies with ties to Sudan, where the government stands accused of sponsoring terrorism and sanctioning genocide in the Darfur region.

Socially responsible ETFs still represent just a sliver of the total ETF universe, which includes more than 560 unique products, but they are nonetheless shaping in important ways the portfolios of discerning investors.

The most basic appeal of ETFs, for investors with and without social missions, is their relatively low maintenance costs. ETF investors generally give up just 0.5 percent of their asset value per annum for operating expenses, versus an average of 1.2 percent for an actively managed mutual fund. That's largely because ETFs have no manager getting paid to decide whether a particular stock is poised to pop or fizzle. As a result, ETFs cost less than managed funds do to operate.

Comparing ETFs with an actively managed mutual fund, "the lone disadvantage [of ETFs] would be if the actively managed fund consistently outperforms the socially responsible ETFs over time," says an e-mail from Tom Lydon,editor of ETF Trends, an industry newsletter. To date, he says, socially responsible ETFs are for the most part too new to have a clear track record.

Labels: Investing Green