(Dow Jones) Financial advisors whose clients want ethics to play a role in their investment portfolios are getting a new tool.
Pax World Management LLC, a pioneer of socially responsible investing founded in 1971, will offer a series of exchange-traded funds starting with ESG Shares North America Sustainability Index ETF (NASI) Wednesday. The company will follow with additional funds targeting environmental and overseas stocks shortly after.
Despite its well-known brand, Pax has its work cut out for it. The funds will face stiff competition in an ETF niche that hasn't proven a huge hit with investors.
BlackRock Inc.'s (BLK) iShares unit already offers a pair of socially responsible ETFs that target slightly different socially responsible indexes. Meanwhile, a start-up known as FaithShares offers a series of ETFs tied to various Christian denominations' investing guidelines. None of the funds have attracted large amounts of assets. The largest, the iShares FTSE KLD Select Social Index Fund (KLD) has about $127 million, despite being on the market since 2005.
The new Pax ETF will levy annual investment fees of 0.5%, matching but not undercutting the BlackRock funds. Those costs are low compared to the average mutual fund, but well above what exchange-traded funds that target U.S. stocks without tweaking holdings to attempt to account for ethical considerations charge.
Like many newer socially responsible funds, the Pax ETFs will follow a "sustainable" investing strategy, picking stocks based on environmental, social and governance factors, rather than simply screening out certain industries like defense or tobacco, according to Pax World Chief Executive Joe Keefe.
"It's a strategy for long-term outperformance," he says.
Pax World is the latest in a string of well-known fund companies with plans to enter the ETF business, including Pacific Investment Management Co., T. Rowe Price Group Inc. (TROW), and Legg Mason Inc. (LM).
Still, socially responsible investing may prove a less obvious fit for ETFs than some other investing strategies, if only because its greatest appeal seems to be for buy-and-hold Main Street investors. While ETFs have a number of smaller advantages over conventional mutual funds, their central appeal has always been their convenience as a trading vehicle.
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