Some ETFs mix investing with charities — should you? – MarketWatch

December 19, 2021 by No Comments

As investors increasingly seek to do good with their money, some companies behind exchange-traded funds are adding a twist: a direct connection to a charity such as the American Heart Association, the Susan G. Komen foundation or the NAACP.

The ETF issuers hope to capture a segment of the growing popularity of environmental, social and governance investing, where investors seek to align their personal values with their pocketbooks. In 2020, US SIF Foundation, which measures this type of investing, said 33% of U.S. assets under professional management use ESG criteria when investing.

That poses a question for investors: Does marrying philanthropy and investment blur the line between the two goals?

Fund managers behind these so-called impact funds pledge to give funding to the nonprofits through outright donations or part of the fund’s expense ratio. The funds, which reference the cause in the name or ticker symbol, are generally track custom indexes, one reason why they are pricier than other index funds focused on the sector or theme.

The funds not only seek to own companies that positively reflect the organizations’ mission using ESG metrics, but by also giving money straight to the nonprofits, they strive to have a direct impact on those causes.

Investors, however, should focus on the fund’s investment strategy first and the philanthropic goal second, said Jon Hale, global head of sustainability research at Morningstar.

While it’s easy to look dismiss these types of funds as marketing gimmick, investors are looking for ESG products that they can really embrace, he added.

Brian Kelleher, chief revenue officer for Simplify Asset Management, agreed. “There’s no reason to invest in a mediocre product in the hopes of doing good. People are savvy investors; they want to find products that do well so they can do good,” he said.

The funds and their charities

The first impact funds were launched three years ago, when nonprofit fund company Impact Shares, launched the NAACP Minority Empowerment ETF
and YWCA Women’s Empowerment ETF
At least five more were created this year, and another is expected in January.

ETF issuer IndexIQ teamed up with New York Life Investments to launch four thematic ETFs: heart health through the IQ Healthy Hearts ETF
with the American Heart Association; cleaner oceans through the IQ Clean Oceans ETF



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