Impact Investing Is Beating the Broader Markets by Almost 10%
The “impact investing” trend has had vocal critics for years.
They said the win-win argument of those who believe impact investing is a viable personal solution to wanting to both earn more money and have a clean conscience was “illogical” and inconclusive.
And maybe it was at first…
But not anymore.
Impact investing funds are beating broader market returns. And the numbers show this trend isn’t an exception… but rather the new rule.
Is Doing Good Worth It?
Impact investing – also known as environmental, social and governance (ESG) investing – is a relatively new subset.
It’s based on the idea that investors can do well financially while investing in companies they personally define as ethically sound.
Now, of course, that’s highly subjective territory. But, for the most part, this sector includes companies that focus on reducing their carbon footprints, adopting sustainable energy practices, paying their employees a living wage, providing clean and safe workspaces, supporting women and minorities, and so on.
One of the many unique exchange-traded funds (ETFs) that profit off of socially responsible businesses is the US Vegan Climate ETF (NYSE: VEGN). It tracks the Beyond Investing US Vegan Climate Index, which comprises only companies that meet strict ethical criteria.
This fund came to mind because one of the keynote speakers at The Oxford Club’s 23rd Annual Investment U Conference this week is a renowned investor, billionaire and entrepreneur – John Mackey, the founder of Whole Foods Market. Mackey is also a well-known advocate of veganism for better health and longevity worldwide, as well as the more humane treatment of animals.
The Beyond Investing US Vegan Climate Index tracks companies some of you may expect – ones that have humane practices, are animal friendly and are good for the environment. This rules out any company that participates in animal testing, animal farming, fossil fuel burning, habitat destruction, tobacco production, military contracts, forced labor and more. But you may be surprised to learn what the fund’s top holdings are…
They include Tesla (Nasdaq: TSLA), Mastercard (NYSE: MA), Microsoft (Nasdaq: MSFT), Apple (Nasdaq: AAPL), Visa (NYSE: V) and Nvidia (Nasdaq: NVDA). And it’s most heavily weighted in the software, semiconductor and diversified financial services industries.
And you may be even more surprised to see how well it’s done compared with the S&P 500 Index.
Over the last year and a half, the S&P 500 Index has returned 36.7%.
That’s pretty good. But apparently, we can do better…
Over the same time period, the US Vegan Climate ETF has increased 46%. That’s a 9.3% outperformance!
These results can’t – and shouldn’t – be ignored. They highlight a much larger trend at play here.
In the digital age of social media and memes, reputation matters.
A CEO can be disgraced over a video from college. A brand can be smeared over a tweet from an unhappy customer. A product can be shunned over a bad review.
I’m not saying this is right or wrong… It’s just the way things are. The media is greedier than ever. And it can sniff out political incorrectness from the darkest corners of the web.
More companies are promoting positive values and doing their best to make a positive impact on society, keeping in mind who their demographic is. In response, they’re not getting destroyed by an increasingly ravenous media.
Instead, they’re rewarded with positive attention from investors… and, of course, higher returns.
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