Author Topic: Fossil fuel free, low expense ratio investing options?  (Read 1256 times)

Gay Burqueño Dad

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Fossil fuel free, low expense ratio investing options?
« on: January 30, 2020, 01:24:14 PM »
I’d like to politely ask that climate skeptics refrain from commenting on this post, and everyone else refrain from replying to them if they do post, because debating climate change is not the purpose of this post.

I’m coming to the point of feeling a moral revulsion to my money being used for fossil fuel purposes. Yet, the fossil fuel free funds/ETFs I found in about an hour of researching all had expense ratios much higher than index funds which is annoying to me. (I am willing to accept somewhat higher, just not drastically higher). Anyone find relatively good options? I’m also open to staying in index funds and giving say half the estimated expense ratio difference to climate action political groups. But just divesting entirely feels simpler & easier to me, and I am comfortable betting that fossil fuel stocks will have lower than market average returns over the next few decades. I prefer passive to active & international to US only but can be flexible.
« Last Edit: January 30, 2020, 01:27:42 PM by Gay Burqueño Dad »

terran

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #1 on: January 30, 2020, 01:36:32 PM »
Here's my response to another thread on the idea of investing only in companies that share your beliefs:

Quote from: terran
Just putting this out there: investing in a company does not mean you're giving money to that company, so the best you can hope for is to have some small downward effect on the stock price. That does reflect poorly on the company's management and they have to defend why their stock price is lower, but at the same time it means that the people who do invest in the company actually make more money as they have to pay less for the same earnings. In other words, you'll pay a premium for investing only in companies you agree with, while people without your morals (or different morals) will receive that premium for their willingness to invest in those companies.

You'll also pay an additional premium in that index funds with a social agenda have to be a little more active than regular index funds in that someone needs to select what is eligible for inclusion, and they're less popular so they'll have a higher expense ratio than a regular all market tracker. You also have to consider whether the morals of the social index match your own. To be 100% true to your morals you may have to invest in individual stocks and as we all know (or if not, you can find many many threads on the topic), this is almost always suboptimal.

One suggestion I've seen in threads like this is to just invest in a regular all market index tracker, then with the extra money you'll have you can choose to donate that to causes you believe in.

Not everyone agrees, but give some thought to who actually benefits/loses when you choose not to invest in a company. Something I missed in the quote above: if you (and enough people like you) succeed in driving down the stock price of a "sin" stock (by whatever definition), you actually reward people who don't share that belief since they can now buy the same income stream for less money. The only way to actually hurt a company is the decrease it's profits, not to avoid taking it's profits (which you can use for whatever you want, including things that hurt that company).

Davnasty

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #2 on: January 30, 2020, 02:41:17 PM »
I’m also open to staying in index funds and giving say half the estimated expense ratio difference to climate action political groups. But just divesting entirely feels simpler & easier to me, and I am comfortable betting that fossil fuel stocks will have lower than market average returns over the next few decades

I agree with terran and therefore think this route would be the most effective.

And really you could make a case for giving all of the expense ratio difference plus however much less you are comfortable earning in returns over the next few decades. Would you choose an index fund which excludes fossil fuels even if you knew your returns would be .5% less? Then give .5%/year toward climate action political groups.

This would be much more effective than divesting from the stock of companies who's profits depend on fossil fuel. The only thing that would be more complicated in this plan would be figuring up the amount you'll be giving and actually handing the money over, maybe once/year?

Gay Burqueño Dad

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #3 on: January 30, 2020, 03:06:10 PM »
I appreciate your opinions. I think you are correct about direct impacts. However, I still think I'm going for divestment. The impact of divestment is more about stigmatization than direct impacts. Also, I'm willing to bet that holders of fossil fuel reserves are likely to take a large haircut on them over the next few decades. If that comes true, it's actually a financial boon to not have fossil reserve holders in my portfolio.

For others interested in this - the best I've found are SPDR® S&P 500 Fossil Fuel Rsrv Free ETF (SPYX)  and SPDR® MSCI Em Mkts Fossil Fuel Free ETF (EEMX). 0.2% and 0.3% expense ratios respectively. Much worse than say VTI, but much better than most of the "socially responsible" funds, which are up in the 0.8% range.

These funds don't meet the purity standards of fossilfreefunds.org very well (they still include largely fossil-powered electric utilities and gas stations), but electric utilities are starting to get on board the climate wagon & due to their regulatory model will, I think, largely benefit from the clean energy transition. Gas stations, although they can become electric charging stations, will probably take a large haircut because home electric charging will take away 80% of their transactions. But they're only 1.21% of assets and I'm willing to deal with that in exchange for a lower expense ratio.
https://fossilfreefunds.org/fund/spdr-sp-500-fossil-fuel-reserves-free-etf/SPYX/fossil-fuel-investments/FS0000C3K4/F00000WAP7

ixtap

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #4 on: January 30, 2020, 03:18:33 PM »
The problem is, to be truly fossil free, or even have an impact on consumption, you would have to do a lot of sourcing research.

Where does that manufacturing plant get its energy from?

No airlines.

So, what if Boeing uses clean energy in manufacturing, but they are producing planes that use jet fuel?

It is quite the rabbit whole and would probably involve a lot more research than even your average managed fund, at least up front. Just setting the criteria at anything above fossil fuel producers and distributors would require a lot of research. Your stand isn't even going to have the effect of a stigma if it doesn't affect their customers.

Gay Burqueño Dad

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #5 on: January 30, 2020, 03:26:40 PM »
@ixtap  - You're right that airlines would be included if one had a high standard of purity. I don't have a high standard of purity. I just don't want my money funding capital projects at ExxonMobil or (whatever the world's largest coal producer is). I also happen to think that the risk profile for ExxonMobil is severely underestimated by the market.

Financial.Velociraptor

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #6 on: January 30, 2020, 03:53:42 PM »
@Gay Burqueño Dad
You might look at some industry ETFs.  Software and biotech come to mind.  Al Gore slowly became very wealthy after leaving office by starting a "Green" hedge fund.  It was more about ideology than investing prowess (he has none, he hired it out).  Thing was, investing in low carbon industries also meant investing in industries that were capital efficient and scale well.  His staff are also classic "value investors" so he buys those two traits when they are reasonably priced.  Many people think he has become a billionaire for those efforts.

You probably don't qualify as an "accredited investor" so you probably can't invest with Gore.  But you can look up his 13-F holdings and buy the ETF's that best correspond for an approximation that doesn't suffer from 2/20 drag.  Google is your friend for that task.

MaaS

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #7 on: January 30, 2020, 05:36:00 PM »
Here's my response to another thread on the idea of investing only in companies that share your beliefs:

Quote from: terran
Just putting this out there: investing in a company does not mean you're giving money to that company, so the best you can hope for is to have some small downward effect on the stock price. That does reflect poorly on the company's management and they have to defend why their stock price is lower, but at the same time it means that the people who do invest in the company actually make more money as they have to pay less for the same earnings. In other words, you'll pay a premium for investing only in companies you agree with, while people without your morals (or different morals) will receive that premium for their willingness to invest in those companies.

You'll also pay an additional premium in that index funds with a social agenda have to be a little more active than regular index funds in that someone needs to select what is eligible for inclusion, and they're less popular so they'll have a higher expense ratio than a regular all market tracker. You also have to consider whether the morals of the social index match your own. To be 100% true to your morals you may have to invest in individual stocks and as we all know (or if not, you can find many many threads on the topic), this is almost always suboptimal.

One suggestion I've seen in threads like this is to just invest in a regular all market index tracker, then with the extra money you'll have you can choose to donate that to causes you believe in.

Not everyone agrees, but give some thought to who actually benefits/loses when you choose not to invest in a company. Something I missed in the quote above: if you (and enough people like you) succeed in driving down the stock price of a "sin" stock (by whatever definition), you actually reward people who don't share that belief since they can now buy the same income stream for less money. The only way to actually hurt a company is the decrease it's profits, not to avoid taking it's profits (which you can use for whatever you want, including things that hurt that company).

Well said and agreed. Buying shares on the secondary market isn't really "funding" a company.

Also, where do you draw the line? Berkshire Hathaway Energy uses a lot of fossil fuel, but they're also one of the biggest creators of renewable energy capacity in the country.

PDXTabs

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #8 on: January 30, 2020, 05:42:59 PM »
Well said and agreed. Buying shares on the secondary market isn't really "funding" a company.

Yes, if anything you might want to scrutinize your bond portfolio.

Villanelle

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #9 on: January 30, 2020, 06:01:27 PM »
This isn't what you ask, but my take on questions like this is that if fossil fuel usage is a pet issue for me, I can use the much higher returns on my investments to put money directly toward that cause.  If I make less money, it's likely it may still have gone toward fossil fuel use or extraction (as shown by some examples in this thread) and I have less money to donate to clean energy charities, alternative power research, etc. 

norajean

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #10 on: January 30, 2020, 06:31:35 PM »
Seems like a largely symbolic effort and possibly counter productive since fossil fuel corporations will be the most likely to develop renewable technologies as they make the big transition.

MustacheAndaHalf

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #11 on: January 30, 2020, 08:15:38 PM »
I was surprised to find a few "ESG" ("S" for sustainable) index funds that include oil companies.  I look at which funds hold "XOM "(Exxon Mobil) and found: Invesco ESG Revenue ETF , FlexShares STOXX US ESG Impact Index Fund and Xtrackers S&P 500 ESG ETF.

@Gay Burqueño Dad - Are you willing to hold 10 different ETFs?

Both Vanguard and Fidelity offer low priced sector ETFs: 0.10% annual expense ratio at Vanguard, and 0.08% at Fidelity.
 You could buy every sector ETF (tech, financials, health care, etc), except Energy.  That would leave you with about 10 different ETFs just to hold the US stock market - but you'd know for certain there's no energy companies in your portfolio. 

To make reinvesting easier, you'd want a spreadsheet that just adds up what you've got, and calculates what to invest.  If you hold 23% technology, then when investing $500, 500 x .23 = $115 should be invested in the tech sector.  At a few places now, ETFs are $0/trade.  At Vanguard, Fidelity or Schwab you can buy any ETF for $0/trade.

Hirondelle

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #12 on: January 31, 2020, 12:34:19 AM »
Here's my response to another thread on the idea of investing only in companies that share your beliefs:

Quote from: terran
Just putting this out there: investing in a company does not mean you're giving money to that company, so the best you can hope for is to have some small downward effect on the stock price. That does reflect poorly on the company's management and they have to defend why their stock price is lower, but at the same time it means that the people who do invest in the company actually make more money as they have to pay less for the same earnings. In other words, you'll pay a premium for investing only in companies you agree with, while people without your morals (or different morals) will receive that premium for their willingness to invest in those companies.

You'll also pay an additional premium in that index funds with a social agenda have to be a little more active than regular index funds in that someone needs to select what is eligible for inclusion, and they're less popular so they'll have a higher expense ratio than a regular all market tracker. You also have to consider whether the morals of the social index match your own. To be 100% true to your morals you may have to invest in individual stocks and as we all know (or if not, you can find many many threads on the topic), this is almost always suboptimal.

One suggestion I've seen in threads like this is to just invest in a regular all market index tracker, then with the extra money you'll have you can choose to donate that to causes you believe in.

Not everyone agrees, but give some thought to who actually benefits/loses when you choose not to invest in a company. Something I missed in the quote above: if you (and enough people like you) succeed in driving down the stock price of a "sin" stock (by whatever definition), you actually reward people who don't share that belief since they can now buy the same income stream for less money. The only way to actually hurt a company is the decrease it's profits, not to avoid taking it's profits (which you can use for whatever you want, including things that hurt that company).

This post (the original in the old thread) actually has been very helpful for me in realizing that 'normal' ETFs are OK to hold.

I still have quite a lot of money in a sustainable fund (TSWE in case anyone's wondering) which has an expense ratio of .3%. As I am in Europe and unable to get VTI/VSTAX my alternative to that has an expense ration of 0.22% already so that's not too different. The reason I have upped my investments in the 'normal' ETF though is that it's more diversified with 10k stocks while TSWE is only 250 or so companies.

To still try to stimulate energy transition, I do directly invest in solar projects through several websites in my country. These are usually for big projects and as an investor you get around 5% interest. I consider them my 'high risk bonds'. Not sure if you have options like this in the US.

The last option is obviously to donate your extra money to environmental charities (I do so too) but  I believe that reducing consumption is most important. Planting more trees is valuable but for the climate problems just a distraction. If you can find ways to reduce energy consumption around you (either you and your family, or a broader circle of people around you) that would be probably most impactful :)

FIKristen

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #13 on: February 03, 2020, 08:56:21 PM »
You want the Vanguard ESG funds.  Expense rations are low: 0.12 to 0.14%

https://investor.vanguard.com/investing/esg/

If you're a solo 401k holder like me, you'll have to do the index fund (VEIGX) since they haven't made the ESG ETFs available for self-employed 401k holders yet. It's pretty similar.

PDXTabs

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #14 on: February 04, 2020, 02:08:55 PM »
You want the Vanguard ESG funds.  Expense rations are low: 0.12 to 0.14%
https://investor.vanguard.com/investing/esg/

What if I don't care about the Social and Governance part? Can I buy VT ex-fossil fuels somehow?

ChpBstrd

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Re: Fossil fuel free, low expense ratio investing options?
« Reply #15 on: February 05, 2020, 10:47:50 AM »
I’ve found that historically the biggest damage to my portfolio has come from my own narratives and failure to hedge against myself being wrong. Based on media reports, it seems impossible right now to think electric cars will not BOTH outperform and cost less than old fashioned ICE cars within the next 5-10 years.

But what if that narrative is wrong, and electric cars hit an unforeseen technical ceiling that leaves them with a total cost of operation 10% greater than ICE cars, and what if this disadvantage persists for 20 years until the next storage innovation arrives? Or what if conservative governments apply all sorts of extra regulations on electric cars that don’t apply to ICE cars, such as requiring electric car companies to cover the costs of battery recycling? In that horrible scenario, the future might look a lot like the present, just a bit warmer.

That dystopian scenario is not something I’d bet on, but it’s also not something I’d bet everything against. I’ve been burned too many times by the stories we tell ourselves. The people betting that oil companies are oversold have all the same info we do, and someone is going to lose the bet. Why bet at all when indexing accounts for the rise and fall of industries automatically?