Passive ESG (et al.) funds/ETFs

BuzzingBoulder

Hi all,

I'm a suffering from severe research fatigue and could do with some help. Not specifically direct recommendations on product X or Y, but just some human input of my situation. Sorry for the long post. 

With my humble amount of savings, I have been quite happy with Cash ISAs, but I've now built up enough of buffer that I'm wanting to move some of my capital into a stocks and shares ISA. Coupled with the potential reduction in the annual Cash ISA allowance, now seems like a good time to take a leap of faith into investing.

I'm not new to investing however, I've been using Freetrade for several years now, which started out as a mixture of a bit of fun and education. I've bought small amounts of shares in a diverse, hand-picked portfolio over the years (I'm talking a three-digit figure total investment) and seemed to have lucked out with very good returns to date. 

I have a Cash ISA with Trading 212 (T212) for the 4.96% rate, although they have recently emailed saying it's soon dropping to track 0.15% under BoE base rate. T212 also offer a stocks and Shares ISA and the ability to easily move money between account types. I could also in specie transfer from Freetrade and have everything under one roof as it were (for now let's forget about having all eggs in one basket, I'm aware of the cons associated with this).

This is tempting as their website and app appeals to me (I'm a total nerd), however, it falls short on its search functionality. There are no filters for the kind of funds and ETFs I’m interested in, but ironically there is ‘Sinful stocks’ list! The only thing you can do is include “ESG” in the search term which brings up some the common offerings from the likes of Vanguard and iShares and a few others. The problem is that these common ESG funds include many organisations that do not match my values. 

As the discussion title suggests, I will only be considering ESG/SRI/Impact Investment, or whatever the next label for these vehicles will be, but you get the idea, let's just say ‘ethical’ for ease.

I’m not asking for your opinion what constitutes an ethical investment, that will quickly become political and detract from the main question, which is, can you give me some advice on where I should be looking in terms of passive ESG investment? Here are my basic requirements: 

• Low fees (hence passive. I’m confident enough to go DIY but will not be picking individual stocks and bonds etc. myself, despite my seemingly good track record with this, I believe I just got lucky).
• Typical ESG/SRI negative screening
• Positive ESG/SRI screening
• Little focus on US tech

Just on the last one there; I cannot stand the tech-bros. They seem to dodge ESG/SRI with their token gestures and box ticking, but I firmly believe that their morals and ethics live in the gutter. Take Meta/Google/Apple for digital privacy for example (or lack of it). I won’t even go there with Tesla and their CEO. Oops, I’m getting political!

I’ve just read what I have typed so far and I think I’ve come to realise that without choosing everything myself and spending all of my spare time babysitting a portfolio, it’s probably not possible to find what I’m looking for.

The closest I have come in my research is the Triodos S&S ISA products, but they are actively managed and come with hefty fees. Is there something out there like the Triodos funds that are passive?

I’m also bemused around the choice of using so called robo-advisor platforms that offer passive products, trading platforms or traditional broker style offerings.

I know what I’m asking for is extremely broad and vague, but after spending several weeks of research, I’m almost ready to forget the whole thing and just stick with Cash ISAs and live with the probably 4k annual allowance in the hope the government picks it back up again in the not-too-distant future.

Many thanks in advance for taking the time to read this post and for any help or advice you offer.

wmb194

BuzzingBoulder said:

Hi all,

I'm a suffering from severe research fatigue and could do with some help. Not specifically direct recommendations on product X or Y, but just some human input of my situation. Sorry for the long post. 

With my humble amount of savings, I have been quite happy with Cash ISAs, but I've now built up enough of buffer that I'm wanting to move some of my capital into a stocks and shares ISA. Coupled with the potential reduction in the annual Cash ISA allowance, now seems like a good time to take a leap of faith into investing.

I'm not new to investing however, I've been using Freetrade for several years now, which started out as a mixture of a bit of fun and education. I've bought small amounts of shares in a diverse, hand-picked portfolio over the years (I'm talking a three-digit figure total investment) and seemed to have lucked out with very good returns to date. 

I have a Cash ISA with Trading 212 (T212) for the 4.96% rate, although they have recently emailed saying it's soon dropping to track 0.15% under BoE base rate. T212 also offer a stocks and Shares ISA and the ability to easily move money between account types. I could also in specie transfer from Freetrade and have everything under one roof as it were (for now let's forget about having all eggs in one basket, I'm aware of the cons associated with this).

This is tempting as their website and app appeals to me (I'm a total nerd), however, it falls short on its search functionality. There are no filters for the kind of funds and ETFs I’m interested in, but ironically there is ‘Sinful stocks’ list! The only thing you can do is include “ESG” in the search term which brings up some the common offerings from the likes of Vanguard and iShares and a few others. The problem is that these common ESG funds include many organisations that do not match my values. 

As the discussion title suggests, I will only be considering ESG/SRI/Impact Investment, or whatever the next label for these vehicles will be, but you get the idea, let's just say ‘ethical’ for ease.

I’m not asking for your opinion what constitutes an ethical investment, that will quickly become political and detract from the main question, which is, can you give me some advice on where I should be looking in terms of passive ESG investment? Here are my basic requirements: 

• Low fees (hence passive. I’m confident enough to go DIY but will not be picking individual stocks and bonds etc. myself, despite my seemingly good track record with this, I believe I just got lucky).
• Typical ESG/SRI negative screening
• Positive ESG/SRI screening
• Little focus on US tech

Just on the last one there; I cannot stand the tech-bros. They seem to dodge ESG/SRI with their token gestures and box ticking, but I firmly believe that their morals and ethics live in the gutter. Take Meta/Google/Apple for digital privacy for example (or lack of it). I won’t even go there with Tesla and their CEO. Oops, I’m getting political!

I’ve just read what I have typed so far and I think I’ve come to realise that without choosing everything myself and spending all of my spare time babysitting a portfolio, it’s probably not possible to find what I’m looking for.

The closest I have come in my research is the Triodos S&S ISA products, but they are actively managed and come with hefty fees. Is there something out there like the Triodos funds that are passive?

I’m also bemused around the choice of using so called robo-advisor platforms that offer passive products, trading platforms or traditional broker style offerings.

I know what I’m asking for is extremely broad and vague, but after spending several weeks of research, I’m almost ready to forget the whole thing and just stick with Cash ISAs and live with the probably 4k annual allowance in the hope the government picks it back up again in the not-too-distant future.

Many thanks in advance for taking the time to read this post and for any help or advice you offer.

People are done with it because the returns were rubbish and the definitions of ‘ethical’ are nebulous. 

I never use brokers’ data for research, just Google it.

Perhaps https://www.justetf.com/uk/ ?

BuzzingBoulder

wmb194 said:

People are done with it because the returns were rubbish and the definitions of ‘ethical’ are nebulous.

I hear you. I'm willing for returns to be potentially lower than typical ETFs, however, from my understanding I thought returns could be lower due to higher management fees associated with ESG, not that the funds themselves under perform as such. Data I have seen suggests they can and do compete, but I'm no financial analyst.

I just don't want to be in bed with organisations I don't like. Yes I understand my money will not go to them unless it's during the IPO, but mere association with them would mean I'd rather just stick to savings accounts instead.

Maybe I just need to bite the bullet and look at the Triodos active offerings, but that's not really what I'm looking for. I wish I didn't care and could just buy into the main index trackers...

wmb194

BuzzingBoulder said:

wmb194 said:

People are done with it because the returns were rubbish and the definitions of ‘ethical’ are nebulous.

I hear you. I'm willing for returns to be potentially lower than typical ETFs, however, from my understanding I thought returns could be lower due to higher management fees associated with ESG, not that the funds themselves under perform as such. Data I have seen suggests they can and do compete, but I'm no financial analyst.

I just don't want to be in bed with organisations I don't like. Yes I understand my money will not go to them unless it's during the IPO, but mere association with them would mean I'd rather just stick to savings accounts instead.

Maybe I just need to bite the bullet and look at the Triodos active offerings, but that's not really what I'm looking for. I wish I didn't care and could just buy into the main index trackers...

“I just don't want to be in bed with organisations I don't like.”

These days it’s very cheap and easy to build a portfolio of shares in individual companies. In fact easier and cheaper than it’s ever been and T212 offers a wide array of companies in different markets. The only thing to beware of is good record keeping if you hold them outside an Isa.

dunstonh

I hear you. I'm willing for returns to be potentially lower than typical ETFs, however, from my understanding I thought returns could be lower due to higher management fees associated with ESG, not that the funds themselves under perform as such. Data I have seen suggests they can and do compete, but I'm no financial analyst.

Not sure what data you have seen, but for decades, ethical, sustainable, responsible and more recently ESG have underperformed conventional over the medium to long term.

Its not to do with fees.  Its to do with not having higher growth investments in your portfolio.

I’m not asking for your opinion what constitutes an ethical investment, that will quickly become political and detract from the main question, which is, can you give me some advice on where I should be looking in terms of passive ESG investment? Here are my basic requirements: 

• Low fees (hence passive. I’m confident enough to go DIY but will not be picking individual stocks and bonds etc. myself, despite my seemingly good track record with this, I believe I just got lucky).

• Typical ESG/SRI negative screening

• Positive ESG/SRI screening

• Little focus on US tech

Just on the last one there; I cannot stand the tech-bros. They seem to dodge ESG/SRI with their token gestures and box ticking, but I firmly believe that their morals and ethics live in the gutter. Take Meta/Google/Apple for digital privacy for example (or lack of it). I won’t even go there with Tesla and their CEO. Oops, I’m getting political!

It sounds like you want ethical investing rather than ESG.

Hoenir

Read the Investors Chronicle every week. Over time you'll gain a broader knowledge of the vast universe that investing encompasses. Formulating your own views and ideas does indeed take time and effort. Whether it's worth it or not. Is dependent upon the sums involved  and/or the interest you have in the topic. Reward is earnt. Rarely a free lunch. 

kempiejon

There are some ideas in the investment trust unverse.
https://www.theaic.co.uk/aic/find-compare-investment-companies?sec=REI&sortid=Name&desc=false

Solar, wind, storage, renewables are covered, Octupus has an infrastructure offering. Currently prices down, I think a function of interest rates, offering good yields though as prices have fallen for a couple of years.

InvesterJones

The FCA have introduced a batch of sustainability labels which might be able to help you filter funds, but they don't go into the detail of what is considered sustainable. For your positive screening I'd probably look for funds with the 'Sustainability Impact' label.

Passive investment will include tech - any decision to drop it stops being passive and starts becoming active so you'll pay accordingly.

Some examples:

Lowish fee: AXA People & Planet Equity Fund S Accumulation. GB00BMGMLQ68

More usual active fee: M&G Positive Impact Fund Sterling I Acc. GB00BG886B02

BuzzingBoulder

These are great points, thanks for the feedback everyone, it's much appreciated 

TheTelltaleChart

On the negative screening side, softer filters may be bypassed with a bit of box ticking and denying knowledge what happens in your own supply chain. But some funds use harder filters, which effectively exclude companies whose main businesses are in sectors deemed bad (which with luck might be similar to what you want to avoid). However, they aren't going to exclude US tech by that method — after all, technology is not bad per se (well, not in most opinions).

E.g. the various Vanguard equity funds with "ESG" in their name have a hard filter on the areas of (a) Vice Products, (b) Non-Renewable Energy and (c) Weapons (you can look up the details to check whether the exclusions match what you'd prefer). But that has the effect that there is even more US tech than there would be without applying any filters (e.g. comparing Vanguard ESG Global All Cap ETF to Vanguard FTSE Global All Cap Index Fund).

If it's US tech specifically that you want to avoid, you could consider funds excluding the US, e.g. these Vanguard funds have sector filters (a)-(c) and just happen to cover other parts of the world:

Vanguard ESG Developed Europe All Cap ETF

Vanguard ESG Developed Asia Pacific All Cap ETF

Vanguard ESG Emerging Markets All Cap ETF

To get postitive screening, I don't think you can avoid expensive active management. Triodos are worth considering if their approach matches what you're after. They are certainly more committed to it than some of the indexers (Vanguard included) who launched ESG products because that's what they heard some people want to buy.