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Three Steps to a Socially Conscious Portfolio


Once you decide on your approach, you have another choice: active management, where fund managers handpick the contents of a portfolio company by company, or passive management, where they might license an index. Active funds tend to have higher fees, particularly for international funds where more expensive research may be necessary. And high fees can hurt returns.

Now for some nitty-gritty.

First, the funds you’re considering. What, exactly, is in them? You can ask for the full list of companies, even though a fund’s fact sheet might list only the top 10 holdings. It can be an illuminating exercise.

Next, consider the fund managers themselves. How long have they been running this fund or ones like it — particularly if they are handpicking stocks and not just renting an index to use? Investment advisers and people who pick funds for 401(k) plans usually want to see at least a three-year track record and tens of millions of dollars under management.

Both are barriers to entry. One leaves out fund managers using new strategies, like animal welfare funds. And if few people will give a new fund money without a track record, wealthy fund managers have a built-in advantage: They can gather money from family.

“As a queer woman of color, I came from extreme rural poverty,” said Rachel Robasciotti, whose San Francisco-based investment advisory firm uses some of the most rigorous E.S.G. criteria that I’ve ever seen. “I’m well-connected now, but I don’t have that treasure trove of assets.”

Another question that doesn’t come up as much but should: How do the fund companies vote on shareholder resolutions? This usually isn’t easy to figure out, and some fund companies are better about sharing it than others.

On Thursday, Morningstar released a report on five years of E.S.G. voting records from 50 large fund companies, although it excluded governance resolutions and shareholder rights initiatives that did not specifically include social or environmental factors. It found that in 2019, Allianz Global Investors, Blackstone, Eaton Vance and PIMCO were most likely to vote in favor of E.S.G.-related resolutions. The least likely list included five of the 10 largest fund companies: American Funds, Dimensional Funds, T. Rowe Price, Vanguard and BlackRock, which shouted from the rooftops last month that it really, truly intends to care more about these sorts of things from this point forward.

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