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Socially Responsible Investments Prove Their Mettle in a Tough Market

One of the key concerns about Socially Responsible Investments (which are also known as "ESG funds") is that carry too much risk as they focus on just a slice of the broader market--in this case, companies that act in an ethical manner).

Well, the current market environment should put such concerns to bed. According to Morningstar, first-quarter returns of 70% of these SRI funds ranked in the top halves of their respective categories and 44% ranked in their category's best quartile (while 11% finished in their category's worst quartile).

Morningstar also analyzed 12 large-cap focused SRI funds and found that 10 of them had smaller losses than the S&P 500 in the first quarter. The average large cap SRI fund returned a negative 18.5% versus a 19.6% drop in the S&P 500. Nobody likes to see losses, but it's increasingly clear that SRI funds don;t carry excess risk for investors. If anything, the high quality of leadership and governance of firms that meet strict SRI criteria show them to be well-suited to these challenging times.

In the fourth quarter of 2018, another time of market weakness, SRI funds also, on average held their value better than the S&P 500. If you're just getting started with SRI funds, good choices include the iShares MSCI KLD 400 Social ETF (DSI) and the SPDR SSGA Gender Diversity Index ETF (SHE). For investors keen to minimize exposure to fossil fuels in their portoflios, the SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX) is a good choice.