Socially responsible investing (SRI) is about as feel-good as Wall Street gets. After all, if you really want to invest with your conscience, what’s better than a fund that does all the legwork for you?
And sometimes, these SRI funds produce more than just sunshiney feelings and hugs. Sometimes, they actually produce returns.
But a new product from Barclays (BCS) illustrates what I believe to be the core problem with the idea of investing in one company or many simply because you’re being told it’s good for your conscience.
The Return on Disability ETN — Helping No One
Earlier this month, Barclays launched the Return on Disability ETN (RODI), which tracks the Return on Disability US LargeCap ETN Total Return USD Index. As is the case with many indices, this one has been created for one reason only — to market a fund product. And here’s what the index does:
“The Index uses a quantitative ranking methodology to measure a company’s publicly observable activities relating to people with disabilities across three key areas: talent, customer and productivity. This ranking methodology focuses on elements that have the potential to increase shareholder value in a company, such as using best practices for attracting and hiring candidates with disabilities, focusing on ‘ease of use’ features in products and services, and implementing productivity-focused process improvements driven by people with disabilities. The phrase “disability market” refers to the 1.3 billion people globally who face challenges across three general areas — dexterity, cognition or sensory abilities — as well as their friends and family.”
Naturally, there are screens for quality, so you end up with some top holdings that aren’t just kind to the disabled, but actually are solid investments. Walt Disney (DIS)? Never going away. PepsiCo (PEP)? Global titan with some income. Apple (AAPL)? Hey, everyone loves Apple, am I right?
So, you’re making the world a better place, and you’re investing in rock-solid companies. It’d be hard not to feel great about that!
But I’ll try anyway.
What if I told you that investing in RODI didn’t make the world a better place for the disabled at all? That other than raising a tiny bit of awareness that the disabled exist — which, I think we all were aware of the existence of people with disabilities — RODI was just a clever way to get your money?
First, let’s talk about scale. Because RODI is a new fund, Barclays hasn’t disclosed much information on it. RODI’s page doesn’t list assets under management, and we only know top 10 holdings, but no weights, so we’re doing a little assuming here. Still, stick with me.
Let’s say that RODI builds $26 million in assets to match another Barclays SRI product, the Barclays Women in Leadership ETN (WIL), and let’s say top holding Disney gets a generous 5% weighting. That means RODI is investing about $1.3 million into DIS shares. Disney is further compelled to continue its disabled-friendly policies, right?
Well, it would be, except that $1.3 million represents less than 0.001% of its $153 billion market cap. Heck, that total amount doesn’t even represent close to 1% of its daily trading volume.
Besides. Barclays isn’t even investing your money in Disney anyway.
You see, RODI is the Return on Disability ETN, and “ETN” is the key term there. It stands for “exchange-traded note,” which means that what you’re actually buying is debt securities that are designed to track an index. That’s much different than an exchange-traded fund — like, say, the SPDR S&P 500 ETF (SPY) — in which you’re actually buying a basket of stocks that make up the fund’s underlying index.
Your money is going mostly toward a trading tool, with 45 basis points a year paying whoever is running the Barclays computer that takes care of this index.
How good do you feel now?
The Great Lie of SRI
Fund providers just want your money, and they’re increasingly figuring out that a great place to mine for that money is the human heart. That’s why you’re seeing more SRI products.
The problem with SRI funds is that they’re great in theory, but in practice, they rarely do anything to help the core issues they’re created around. You might find one that takes a couple basis points of operating expenses and actually puts that money toward charity, and that’s certainly better than nothing.
But if you really have a cause you love, just donate to that cause.
For instance, if you want to help the physically disabled, you could consider donating to organizations such as these, which earn top ranks from charitynavigator.org:
- 4 Paws for Ability
- American Association of People With Disabilities
- Cleveland Sight Center
- Easter Seals Capper Foundation
- Helen Keller Services for the Blind
- Starkey Hearing Foundation
At least then, you’ll be making a difference.