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These Funds Aim to Double Your Impact

You may have noticed a flurry of new investing products that link sustainably themed funds with donations to nonprofit groups, from the NAACP to the National Wildlife Federation. But before you invest in a mutual or exchange-traded fund tied to your favorite charity, make sure that it fits within your portfolio and truly delivers a benefit to the nonprofit group with which it partners, notes Ellen Kennedy, Kiplinger's Personal Finance.

When comparing these funds with competitors, “consider the fund donation to be the cherry on top, not the main driver of the decision,” says Jon Hale with research firm Morningstar.

And look beyond a fund’s donation to measure impact. Start by taking a hard look at its management company. Does it actively partner with the nonprofit group it benefits to bring about change? Is it voting shareholder proxies and filing shareholder resolutions to further the nonprofit’s cause?

The concept of working hand-in-glove with nonprofits isn’t completely novel. Consider Green Century Balanced Fund (GCBLX), which is owned by several U.S. nonprofits and uses its profits from fees to support environmental and public health goals.

Moreover, Green Century has for years engaged companies by filing shareholder resolutions, speaking with corporate executives and doing policy work. Apple, for example, Balanced Fund’s second-largest holding, announced in November that it would redesign its products to enable consumers and independent shops to repair devices and thereby reduce electronic waste, the fastest-growing global waste stream. Green Century was one of the main drivers of this “right to repair” decision.

All that engagement comes at a cost – the expense ratio for Green Century Balanced is 1.46%. But over the past 10 years, Balanced Fund’s 10.6% annualized return beat 83% of its peers.

Simplify Health Care ETF (PINK) is another fund that has a strong investment thesis and aims to provide a significant boost to a nonprofit group. This ETF is actively managed by Michael Taylor, a trained virologist as well as a highly regarded hedge fund manager.

Simplify is donating all of its net profits from managing the fund, or a minimum of $100,000 per year, to the Susan G. Komen Foundation for breast cancer research. The fund’s 0.50% expense ratio is reasonable, given that it has such strong management.

Impact Shares, itself a nonprofit organization, manages a suite of sustainable funds in collaboration with leading nonprofits, including the NAACP, the YWCA and others. Impact has partnered with the groups to help design investment criteria and has pledged to donate 100% of net fee profits to them.

In the case of Impact Shares NAACP Minority Empowerment ETF (NACP), which tracks a Morningstar index designed to provide exposure to U.S. companies with strong racial and ethnic diversity policies in place, Impact has absorbed a portion of the management fee, lowering the expense ratio from 0.75% to 0.49%.

Expect to see more funds linking up with charities. The bottom line is that with any fund promising to donate fee income to a worthy cause, you will have to do some extra homework to make sure the pledge is more than just a marketing exercise.

Editor’s Note: Ellen Kennedy is a contributing writer at Kiplinger’s Personal Finance magazine, www.Kiplinger.com.

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