Given that basic materials tend to be cyclical while energy and utilities are defensive, and that healthcare and technology generally balance each other out in terms of volatility, SRI funds tend to perform more or less in line with the broad market on a slightly less volatile basis. The iShares KLD 400 Social Index fund, for example, outperformed the S&P 500 by 1.72 percentage points in 2008 but had underperformed the index by 1.33 percentage points annually during the last three years.

SRI proponents like to argue that "doing good means doing well," but Morningstar ETF analyst Robert Goldsborough says the track record is mixed. "Our feeling is that SRI has the ability to do well, but whether its correlation or causation is very tough to tell," he says. As far as the iShares Human Rights ETF is concerned, he adds, "this is basically an ESG fund with a twist. I'm not sure the exclusion of human rights violators will show up in performance."  

The performance of the Human Rights Custom Index on MSCI ACWI, on which the new iShares ETF is based and which has been backtested to May 2006, has been very close to the parent ACWI index--21.5% annualized during the three years ending March 31, 2012, versus 21.4% for the index, according to MSCI. This is not surprising given that the stocks excluded from the HR Custom Index constitute just 3.97% of the parent index's market capitalization, Kuh notes.

"The benchmark is designed to provide broadly diversified global equity exposure that avoids companies with the most serious human rights concerns," he says.

Advisors who specialize in socially responsible investments welcome the prospect of iShares newest SRI entry. "Human rights, including worker rights, and the environment are very important issues for our clients," says Michael Lent, chair of the U.S. Social Investment Forum and chief investment officer of Veris Wealth Partners, a New York-based wealth manager that focuses on sustainable and responsible investing. US SIF is an association of fund companies, advisors and others dedicated to promoting SRI investing.

Given the cost advantages and trading flexibility of ETFs and the potential to provide clients with a broader array of socially responsible options, "I'm very happy to see this development," Lent says.

At the least, the new offering will provide socially conscious investors with a global equity portfolio in ETF form. "That's key," says Steve Schueth, president of First Affirmative Financial Network, an independent RIA that serves socially conscious investors in Colorado Springs, Colo. "The human rights theme is important to some people, but the fact that this will be a global equity ETF will be attractive to lots of people."

As far as iShares is concerned, Goldsborough offers that he would not be surprised to see more specialized SRI ETFs from the firm. "It has been very adept at slicing investment products into increasingly smaller slivers," he says. "My guess is they're not done."

 

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