The idea at Wealthsimple is that you get to be a financial grown-up, make sophisticated investments, optimize everything, and you never have to worry too much about it. No headaches, incredibly low fees. But if you’re someone who cares about the impact your investments make on the world, up until now, you’ve still had to do all the worrying yourself. But today we’re changing that. Wealthsimple is launching a Socially Responsible Investing (SRI) portfolio. Now you can feel good about your investments morally as well as financially.
What Is It?
OK. So what does SRI mean? SRI portfolios invest in companies that do business in a way that meets a certain threshold of social responsibility. They take into consideration what’s known as ESG: impact on the environment as well as social and governance concerns. It’s become an incredibly popular way to invest. SRI has grown tenfold over the past 20 years—there are now $22 trillion in assets worldwide in SRI funds. In Canada alone, SRI accounts for 20% of all financial assets. Given that our economy isn’t always as progressive as we’d like to imagine (just go behind the numbers on the TSX Index), that’s something we can feel patriotic about.
Of course, it’s still an investment, not a charity. So you are probably wondering whether investing responsibly comes at the cost of lower returns. Academic journals have spilled much ink (and expended much paper—not very SRI, academic journals!) trying to answer this question. And there seems to be a consensus: In the long run, SRI performance is on par with non-SRI performance. If SRI does as well as other investments, then it really is possible to have the best of both worlds.
How It Works
At Wealthsimple, we designed an SRI portfolio using ETFs that prioritize low carbon emissions, advance cleantech innovation, and promote sustainable growth in emerging markets. At the same time, we made sure our SRI offering has what all Wealthsimple portfolios do: excellent diversification (encompassing Canadian stocks, international stocks, and fixed income); low fees (Wealthsimple’s low management fees range from 0.35% to 0.5%—and in some cases, there’s no fee at all); and optimal performance. And of course, our SRI portfolio comes in different flavours designed for different levels of risk tolerance: Conservative, Balanced, and Aggressive.
Here’s a rundown of the ETFs we’ve selected for the SRI portfolio:
o iShares MSCI ACWI Low Carbon Target ETF (CRBN): Global stocks with a lower carbon exposure than the broader market
o iShares Jantzi Social Index ETF (XEN): Canadian stocks, excluding companies with a poor social responsibility record based on broad ESG criteria
o Vident International Equity Fund (VIDI): Developed and emerging economies with sustainable growth, based on criteria such as human rights and low corruption
o PowerShares Cleantech Portfolio (PZD): Cleantech innovators in the developed world
o BMO Mid Federal Bond Index ETF (ZFM): Fixed-income exposure via Canadian government bonds, in order to optimize for risk
One thing to note about SRI ETFs: While Wealthsimple’s fees are the same as they are for non-SRI portfolios, the fees charged by the firms that manage the ETFs are modestly higher than the fees for regular ETFs—a weighted average of 0.25% to 0.40%, compared with 0.2% to 0.3% for regular Wealthsimple portfolios. It’s not much of a difference, but it’s a difference. There is, however, a good reason for the fee difference: Someone smart needs to screen for the most socially responsible companies by going through reams of data and designing cutting-edge analysis tools. And smart people usually don’t work for free.
One other interesting tidbit is that investors in SRI funds are less susceptible to a common investing mistake: panic selling in response to short-term volatility. It could be that knowing you’re making a positive contribution to the world reduces the angst you feel when the market declines, allowing you to make more rational decisions. Another reason SRI helps you do well by doing good.
How To Participate
If we’ve piqued your interest and you want to know more, get in touch! Our portfolio managers can answer all your questions and help select an SRI portfolio with the risk level that’s right for you. To add an SRI portfolio to your account, please reach out to us at email@example.com.
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