6 Factors To Consider When Choosing An Ethical ETF

Regarding socially responsible investing, there isn’t just one type of ETF that fits the bill. This space has been growing recently, with more investors looking to put their money where their values are.

These exchange-traded funds come in all shapes and sizes, but they share a common goal: To provide investors with exposure to companies and markets that align with their personal beliefs.

But as with any investment option, you should consider many factors when choosing an ethical ETF.

Let’s take a closer look at what you should consider before selecting.

1. Know What Constitutes Ethical For You

Before researching potential ethical ETFs, knowing what is ethical for you is essential.

There are many different types of ethical investing available today. While some people choose to filter out certain industries completely—such as avoiding tobacco stocks or companies with animal testing practices—others choose to invest only in companies that fall under a particular category, such as renewable energy, water, housing, or recycling.

2. Look At Past Track Record

Before investing in any ETF, you want to ensure you understand its past track record.

How has the ETF performed over the years? Has it stayed true to its mission, or have the fund managers strayed away from its core philosophy?

You also want to look at how the fund has performed during market conditions, such as bull and bear markets. You also want to look at how the fund has performed relative to other funds in its category. This information can help you decide if it’s a good fit.

Some ethical ETFs are newer to the market, so you want to ensure you understand how long the fund has been in operation and how it performed in different market conditions.

3. Understand The ETF’s Investment Strategy

ETFs operate very differently. Each fund has its investment strategy and philosophy. Before investing, you want to ensure that the investment strategy is something you can get behind.

For example, if you want to invest in clean energy companies, you might be better off with a pure energy ETF rather than a socially responsible ETF.

4. Check Fee Amounts And Other Details

Before investing in any fund, you want to ensure you understand the fees associated with the fund and any other details that might affect your investment. You want to make sure that you are in line with the investment amount that you are comfortable investing in.

You don’t want to be surprised by any added costs when it’s time to inject the money.

5. Know Where Your Money Goes?

This is an important consideration when choosing an ethical ETF. You want to make sure the fund’s criteria align with your values. For example, you might be fine investing in a fund that invests in tobacco companies, as long as tobacco is not the fund’s sole focus.

6. ESG Factors To Consider

When looking at ethical ETFs, you’ll notice that many tend to focus on sustainability and socially responsible investing. You can choose an ETF based on ESG factors such as environmental, social, or governance that might include culture and diversity, impact on society, and corporate transparency.

In Conclusion

As you can see, there are many things to consider when choosing an ethical ETF.

You want to make sure that the fund’s criteria align with your values. You also want to ensure that the fund is financially sound and has a successful track record.

With so many choices available, consider the above factors to choose an ethical ETF.

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