When my midyear portfolio review came around, I knew I would be selling one of my holdings: the Global X Wind Energy ETF (WNDY). It’s my worst performer, and when I checked its sustainability grades on As You Sow as of July 1, 2024, the fossil fuels grade had slipped to C—time to kick this exchange-traded fund (ETF) to anywhere but my portfolio!
Since I’m removing a holding, I thought it best to find a replacement. I want to be able to maintain investments in at least five ETFs in my Charles Schwab brokerage account for diversification purposes. On the flip side, I have to keep in mind the limit on the benefits of diversifying my investments. Going way back to the first book I read about investing, fittingly titled “Investing 101,” author Michele Cagan, CPA, says that “it’s usually not advisable to have more than six or seven mutual funds at a given time, or you can start to counterbalance your efforts to construct a strong portfolio.”
I started my search for a new sustainable ETF where I left off—with the VanEck Environmental Services ETF (EVX). Last I checked, this ETF fit my strategy on As You Sow with all A’s except for a fossil fuels grade of B and a gender equality grade of C. It also had an attractive expense ratio at 0.55%. To my dismay, the gender equality grade fell to D, disqualifying it from my strategy. This solidifies why I review my portfolio twice per year. An ETF might be attractive one month and then quickly lose its sustainable standing the next. Performing a monthly or quarterly review would produce too much turnover for what I can afford with the size of my portfolio (around $6,000) and the time I want to commit to investing.
Instead of planning my attack via the fossil fuels grade, I chose a different approach. Since it’s difficult for funds to grade well on gender equality, I filtered based on high gender equality grades of A or B. The first few contenders I found were quite colorful, with gender equality as their only A grade.
The Impact Shares NAACP Minority Empowerment ETF (NACP) certainly has a goal in mind: gender equality in addition to racial equality, investing in large- and mid-cap companies “with strong racial and ethnic diversity policies in place, empowering employees irrespective of their race or nationality.” As vital as this focus is to improving the world we live in, there is less attention to environmental issues, with a fossil fuels grade of F. It has been hard to find funds that can do it all, but I know they exist!
Further down the list, I stumbled on the IQ Healthy Hearts ETF (HART), which has grades of A for fossil fuels, gender equality, military weapons and tobacco, and grades of B for deforestation, civilian firearms and the prison industrial complex. Its purpose is a bit more focused: It’s “designed to deliver exposure to global companies that help people prevent cardiovascular disease.” Somehow, it manages to have attractive sustainability grades while also improving people’s lives.
Gritting my teeth, I checked AAII.com to see what the expense ratio was: a cool 0.45% with an expense ratio grade of B. This fits my strategy, and it will save me some money! The ETF hasn’t been around long, but it has grades of A or B for three-year, one-year and year-to-date returns.
Now that I have my portfolio actions, I just need the money to make it all happen. I liquidated the SmartyPig high-yield savings account goal I set up for investment funds. Unfortunately, I didn’t reach my goal of $2,000, but we’re going with what we have—which is just over half of that. With the proceeds from selling Global X Wind Energy, I should also be able to add some shares evenly across the rest of my holdings to ensure the cash in my portfolio gets put to work.
Now that I’ve been able to successfully find a fund that fits my strategy, I have a bit more hope for the future of sustainable investing. Because of this, I expect to add another holding to the mix to bring my portfolio up to six ETFs at my next portfolio review. Stay tuned to see how it all goes!
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