Many investors wish to invest in a way that expresses their values. By taking a more sustainable approach in investing their portfolio – allocating more capital to companies with a better track record in environmental, social, and governmental issues while minimizing capital allocation to companies that do not score well in these areas – investors can encourage companies to behave in a more ethical manner.
There is no agreed upon standard for what constitutes “sustainable investing”. There are many different considerations to consider – carbon footprint, avoiding investment in certain industries (healthcare, defense, alcohol/tobacco), child labor laws, women’s rights and empowerment, etc.
Many Sensible Financial clients have expressed interest in sustainable investing in recent years, and we are committed to meeting client needs. Since October 2019, Sensible Financial has offered sustainable investment models based on our Global Factor Tilt and US Factor Tilt Models, incorporating a sustainable approach in most equity asset classes. Our models focus mainly on minimizing the carbon footprint.
A recent change to our sustainable model
We recently made an update to our sustainable model, replacing the DFA Emerging Markets Core Equity I (DFCEX) fund with its sustainable sibling fund the DFA Emerging Markets Sustainability Core 1 (DESIX) fund. We made the exchange in client portfolios with minimal or limited tax consequences. In cases where significant capital gains might have been realized, we will continue to hold DFCEX as a non-preferred legacy fund. We will sell DFCEX when emerging markets is overweight and buy DESIX when it’s underweight.
We intend to expand our sustainable portfolio offerings as we see viable mutual fund offerings emerge. Sustainable investing is still a relatively new phenomenon, and it is dominated by actively managed funds and investment managers. Only recently have more robust offerings of low-cost passive funds become available which better align with Sensible Financial’s investment philosophy. As these funds continue to grow and address more asset classes, we hope to offer a sustainable approach based on our Global Market Cap and US Market Cap models.
If you have any questions about sustainable investing, please reach out to your advisor.
To read more about sustainable investing, read Chris Andrysiak’s article.