7 of the Best Socially Responsible Funds

Socially responsible funds that do the vetting for you.

Wall Street isn't always associated with morality, but that doesn't mean investing has to be devoid of a conscience. In fact, socially responsible investing is on the rise, and a number of funds aiming to track ethically sound companies have popped up in recent years. While the focus of these funds varies from name to name, they generally eschew the weapons industry and avoid "sin stocks" in areas like big tobacco and alcohol. Funds are a great way to invest around themes, and while socially conscious investors should do legwork of their own, the following seven funds are a good place to start looking.

SPDR SSGA Gender Diversity Index ETF (ticker: SHE)

Launched in March 2016, State Street Global's Gender Diversity Index ETF, aptly given the ticker SHE, seeks to track the performance of an index of companies that "are leaders within their respective industry sectors in advancing women through gender diversity on their boards of directors and in senior leadership positions." The fund is well diversified with more than 170 positions. The fund's top 10 holdings are Visa (V), Home Depot (HD), Johnson & Johnson (JNJ), PayPal Holdings (PYPL), Wells Fargo & Co. (WFC), Texas Instruments (TXN), Walt Disney Co. (DIS), Netflix (NFLX), Coca-Cola Co. (KO) and Gilead Sciences (GILD). All of these companies have multiple women on their respective boards.

iShares MSCI KLD 400 Social ETF (DSI)

This socially responsible ETF tracks an index of companies that have "positive environmental, social and governance characteristics." Among socially conscious investors, the term "ESG investing" is often used interchangeably with the "SRI" label, although the former is a newer concept and some argue that the two should be considered as distinct even though there can be overlap. DSI has been around longer than SHE -- the iShares fund began in 2006 -- and it's plenty diversified, boasting more than 400 holdings. That said, around 24% of the portfolio is in the technology sector, so if you're worried about overexposure there, this fund might not be for you. Investing mostly in large and mega-capitalization companies, some of DSI's biggest holdings are Microsoft Corp. (MSFT), Facebook (FB), Alphabet (GOOG, GOOGL) and Procter & Gamble Co. (PG). Alphabet's mantra, "Don't be evil," seems to sum up the way many socially conscious investors feel.

iShares MSCI USA ESG Select ETF (SUSA)

SUSA also screens out companies seen as ethically or morally questionable, notably excluding tobacco from its holdings. There's some overlap with DSI as far as holdings go (there are only so many angelic public companies out there!), but stocks with lower profiles also manage to crack the top 10. Specifically, top holdings like Ecolab (ECL), Accenture (ACN), Salesforce.com (CRM), and Prologis (PLD) show that SUSA is keeping an open mind and not following the herd. This philosophy has paid off for long-term investors.

iShares MSCI ACWI Low Carbon Target ETF (CRBN)

For investors who want to put their hard-earned dollars behind companies that care about the environment, CRBN is a good way to do just that. This fund, which has more than 1,400 positions in the U.S. and abroad, is plenty diversified and is low-cost, with a net expense ratio of 0.2%. The fund doesn't claim to invest in companies with no carbon footprint, just companies with "lower carbon exposure than that of the broad market." Its three largest holdings are Apple (AAPL), Microsoft and Amazon.com (AMZN), though collectively they make up only around 7% of the entire portfolio.

SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)

SPYX is a relative newcomer to the ETF industry; its inception date was in September 2015. Its goal is certainly interesting, though: SPYX aims to replicate the returns of the S&P 500, minus those companies that hold fossil fuel reserves. "Fossil fuel reserves are defined as economically and technically recoverable sources of crude oil, natural gas and thermal coal but do not include metallurgical or cooking coal, which are used in connection with steel production," according to the fund's prospectus. Since its inception, the fund has returned around 12% annually.

Portfolio 21 Global Equity Fund Class R (PORTX)

PORTX is the first mutual fund on this list, and perhaps the starkest difference between it and the previous entries is the net expense ratio, which sits relatively high at 1.33%. The fund is run by Trillium Asset Management, which claims to be the "oldest investment advisor exclusively focused on sustainable and responsible investing." Since PORTX is a global fund, foreign equities find a prominent place in the portfolio. Companies that don't rate highly on environmental, social and governance issues, though? No, thanks. PORTX won't invest in any company with direct interest in fossil fuel exploration or production. It also avoids the weapons industry and companies with controversial labor policies.

TIAA-CREF Social Choice Equity Fund (TICRX)

TICRX seeks to replicate the performance of the Russell 3000 index, sans the companies that don't live up to its ESG standards. This mutual fund is easily the largest of these seven options, with total assets of $4.7 billion. A minimum investment of $2,500 is required for retail investors to buy into this fund, which levies a 45-basis-point net expense ratio. Factoring in climate change, natural resource use, human capital, business ethics and corporate governance, TICRX carefully navigates the investment landscape. In addition to shunning the usual culprits (tobacco, alcohol, weapons, etc.), TICRX also thumbs its nose at gambling and nuclear power investments.

The 7 best socially responsible funds to buy for 2020:

-- SPDR SSGA Gender Diversity Index ETF (SHE)

-- iShares MSCI KLD 400 Social ETF (DSI)

-- iShares MSCI USA ESG Select ETF (SUSA)

-- iShares MSCI ACWI Low Carbon Target ETF (CRBN)

-- SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)

-- Portfolio 21 Global Equity Fund Class R (PORTX)

-- TIAA-CREF Social Choice Equity Fund (TICRX)

Matt Whittaker began writing for U.S. News & World Report in 2015, covering investing topics. Based in Colorado, he also specializes in natural resources and outdoor industry journalism. Mr. Whittaker has reported on renewable energy, coal, oil, natural gas, metals and seafood companies from the Americas, Europe and Asia, and his work has appeared in The Wall Street Journal, Barron's, Pacific Standard, VICE Sports, Backpacker online and High Country News. He has been a fellow with the Knight Center for Specialized Journalism and is particularly proud of an Overseas Press Club Foundation scholarship he won for a series of articles on landmines in Bosnia and Herzegovina. Born in Knoxville, Tenn., Mr. Whittaker graduated with a degree in journalism from the University of Tennessee. You can follow him on Twitter and connect with him on LinkedIn.