It’s time for some more investing! I accumulated another lump sum of $2,000 to add to my Schwab brokerage account, but I’m not sure how to distribute it. I know I want to add some new investments, but should I sell some too?
During the first time I invested back in March 2021, I chose seven index exchange-traded funds (ETFs) that fit my personal environmental, social and governance (ESG) criteria. I started with AAII’s ETF Screener and filtered for socially responsible ETFs with low and below-average expense ratios in their category. From there, I added my investing ideas to AAII’s My Portfolio tracking tool and ran them through As You Sow’s screener, which grades funds based on their investments in stocks of companies that are profiting from the fossil fuel industry, deforestation, gender inequality, sales of guns and military weapons, the prison industrial complex and tobacco.
Unfortunately, the market took quite the fall last year, putting some of my klutziest moments to shame. Most of my initial investments have lost value since purchase, but I know that it’s not the end of the world. AAII taught me that bull markets last longer than bear markets, and by that logic there is hope!
This time, I started my search for new investments with a specific category in mind: vegan food. I found some vegan socially responsible ETFs through AAII’s ETF Screener but most of them had sky-high expense ratios. For instance, the VegTech Plant-Based Innovation & Climate ETF (EATV) has an expense ratio of 0.75%, giving it a category expense ratio grade of F. On As You Sow, it gets almost all A’s, with a B for gender equality. I’m looking for ETFs with expense ratios below 0.60%, but also with category grades of C or better. One vegan ETF that came close was the U.S. Vegan Climate ETF (VEGN)—it has a 0.60% expense ratio, putting it just above my limit, but it also has C grades for gender equality and the prison industrial complex on As You Sow, making it a less sustainable investment.
I decided to switch gears and use As You Sow’s screener to find sustainable investments at the source. I set the filters for grades of B or better for all categories except gender equality, since this is a common one that companies miss. I chose to go for C grades or better for gender equality since it’s something I’m willing to accept as long the grade doesn’t get worse.
This gave me a few more ideas to add to my index ETF list in the AAII My Portfolio tool: VanEck BioTech ETF (BBH), ClearBridge All Cap Growth ESG ETF (CACG), IQ Cleaner Transport ETF (CLNR), Global X Green Building ETF (GRNR), VanEck Morningstar ESG Moat ETF (MOTE) and Schwab U.S. REIT ETF (SCHH).
I recalled reading way back in Michele Cagan’s “Investing 101” that I shouldn’t have more than six or seven ETFs in my portfolio, because at that point there is likely to be some duplication that doesn’t do my portfolio any good. Since I currently hold seven ETFs, I will have to make a sell decision in order to add any new ones to my portfolio.
To determine if I even have something to sell based on my investing strategy, I evaluated my current investments on how their As You Sow grades fared over the last 10 months. When I first invested in the seven ETFs, I made notes of their current As You Sow grades in the My Portfolio tool so I knew what made them attractive when I bought them. With this analysis, I found that two ETFs were potentially on the chopping block: Defiance Next Gen H2 ETF (HDRO) and Fidelity Clean Energy ETF (FRNW). When I bought it, Defiance Next Gen H2 didn’t have a meaningful gender equality grade, but it has since changed to F, and its fossil fuels grade fell from C to D. Fidelity Clean Energy’s fossil fuels grade fell from B to C and its gender equality grade remains at D. I’m mainly basing my analysis on the fossil fuels grades falling, since these grades are more important to my strategy and gender equality will likely be the biggest uphill battle of sustainable investing.
So, I have my crops to harvest, but what will I be replacing them with? From the list of index ETFs I found this time around, VanEck BioTech graded best with all A’s on As You Sow, and CleanBridge All Cap Growth ESG and IQ Cleaner Transport received all A’s and B’s. Schwab U.S. REIT is also a contender with just a grade of C for gender equality dragging it down. If I choose to remove the two ETFs that no longer fit my investing strategy, I will likely add two new ETFs to fill their spots. This means I have to narrow down my list of potential ETFs. But how?
It’s time to take a look at sector diversification. Right now, I have a lot of industrials exposure with a few Global X ETFs, so I don’t want to add any more investments in that category. This means IQ Cleaner Transport is off the table. From here, I chose the two ETFs with the lowest expense ratios and expense ratio grades of A: VanEck BioTech with a 0.35% expense ratio and Schwab U.S. REIT with 0.07%! These will add exposure to the health and real estate sectors and further diversify my portfolio.
Though I now have some sell rules in place for my investments, I don’t have a schedule for evaluating them. I’m currently operating on a roughly annual basis, but with the ESG investing landscape in flux, it might make more sense to review my portfolio midyear as well.
I’ll keep you updated on how my investments fare in 2023!