Socially Aware Portfolios: Considering ESG Investing

Interest in environmental, social, governance investing (ESG) is rising. Learn how you can invest in an ESG managed portfolio.

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Key Takeaways

  • Environmental, social, governance (ESG) investing is on the rise and spans all generations
  • It’s possible to build a diversified portfolio that aligns with your social causes

  • Consider an ESG-managed portfolio offered by TD Ameritrade Investment Management LLC

Do you have a cause that you’re passionate about, such as the environment or human rights? Would you like to be able to promote it while also pursuing your personal financial goals? You’re not alone.

Interest in environmental, social, governance (ESG) investing has increased significantly over the last several years as people seek to do well by doing good. And this trend spans generations. According to a 2016 survey from Spectrum Group, individuals of all ages take social factors into account when making investment decisions, including 53% of respondents age 32 and younger and 41% of those ages 48 to 66.

One widely-held misconception about ESG investing is that it supposedly results in diminished returns. However, a recent study by TD Ameritrade Investment Management, LLC, showed that the MSCI ACWI ESG Leaders Index, which provides exposure to companies with high ESG performance relative to peers, outperformed its parent index—which doesn’t consider ESG factors—over the 2008 –2017 period in eight out of 10 years. This outperformance prevailed both in years when the overall market was down and in years when it was up.

"We believe strong ESG practices can lead to better operational performance, which could ultimately have a positive influence on a company’s stock and bond prices," the study authors concluded.

Investing in environmental, social, and governance causes: top five

Finding individual companies, mutual funds, or exchange-traded funds that not only reflect your beliefs, but also align with your goals, time horizon, and risk tolerance takes time. Rather than go it alone, consider a socially aware Essential Portfolio from TD Ameritrade Investment Management, LLC. 

ESG Investing the Managed Way

Managed portfolios can be an efficient way to invest in a managed ESG portfolio because professional money managers do the “heavy lifting” for you. For instance, Socially Aware Portfolios, an option within Essential Portfolios from TD Ameritrade Investment Management LLC, are designed to invest in companies that have strong ESG ratings. This investing approach evaluates a company’s financial standing along with the following three factors:

  • Environmental issues - companies that may pose less environmental risk than their peers
  • Social issues - companies that seek to promote strong labor relations with their employees, allowing them to retain a high percentage of their workforce and customers
  • Governance issues - companies that strive to promote transparency and diversity surrounding a firm’s management framework

The Socially Aware Essential Portfolios offers a low-cost way to invest in companies with documented environmental, social, and governance practices without sacrificing the potential for competitive investment returns. Each of the five portfolios consists of a mix of equity and fixed income exchange-traded funds (ETFs) that invest in companies with strong ESG scores. The scoring is based on a system from Morgan Stanley Capital International (MSCI), a leading provider of market indices.

Which portfolio is recommended for you depends on your responses to the financial profile questions. For example, if you’re looking to maximize the potential for growth and you have a higher tolerance for risk, your recommended portfolio might be Socially Aware Aggressive Growth. Seeking income? Socially Aware Conservative might be the proposed choice.

Essential Portfolios dashboard view
Source: TD Ameritrade. For illustrative purposes only.

Along with the recommendation, you also receive a confidence score, which shows the current probability of reaching your goal. And a digital dashboard provides a convenient way to track your progress. From this one spot, you can:

  • Get personalized ideas on how to boost your score
  • View historical and projected hypothetical performance
  • See the impact of potential changes to your investment strategy before you make them 

Plus, you don’t have to be in front of your computer. You can keep tabs on your portfolio wherever you are with the TD Ameritrade Portfolios App. And if you need help, Portfolios Specialists are available by phone, email, and live chat.

More and more companies are incorporating ESG practices into their businesses, which is creating more opportunities for individuals who want to use their investment dollars to help build a better future for themselves and society as a whole. Socially Aware Portfolios can help you find these companies so you have more time to pursue your passions.

To learn more about Socially Aware Portfolios, watch this clip from our media affiliate, the TDA Ameritrade Network:

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