Social Investing with ETF Funds: DSI and KLD

Summary: KLD excludes tobacco. DSI excludes tobacco, alcohol, firearms, military weapons, gambling, and nuclear power.

By Greg Moses

According to background materials posted at Domini.Com, the first “social index” for investors was rolled out in 1990 by Amy Domini and her partners, Peter Kinder and Steve Lydenberg.

The Domini 400 Social Index was “an index of 400 primarily large-cap U.S. corporations, roughly comparable to the S&P 500, selected based on a wide range of social and environmental standards.”

Today Domini and Lydenberg oversee a half-dozen mutual funds at Domini Social Investments, while their original indexing partner Kinder continues to manage the Domini 400 Social Index (DS400) at KLD Research & Analytics, Inc. (kld.com).

In addition to the DS400 index, KLD offers a half dozen Sustainability Indexes (which they properly call Indices) and the KLD Select Social Index.

KLD also offers a research service with searchable databases for investors who want to keep tabs on “the social, environmental, and governance (ESG) performance of corporations.”

Jan. 24, 2005 was the inception date for an Exchange Traded Fund (ETF) based on the KLD Select Social Index. It is offered by iShares under the ticker symbol KLD. According to the fact sheet for the KLD ETF, the index underlying the fund is comprised of about 250 companies selected from the S&P 900 on the basis of “ESG scores” –tobacco companies excluded.

On Nov. 14, 2006, iShares followed up with an ETF based on the Domini 400 Social Index (DSI). The fact sheet for the iShares KLD Social 400 ETF says that 250 of the companies in the index come from the S&P 500. To these companies are added another 100 large and mid-sized companies along with 50 smaller ones.

The fact sheet for the KLD Domini Social 400 Index that underlies DSI shows that the negative screen is more demanding than with the KLD Select Social Index that underlies KLD. KLD excludes tobacco. But DSI also excludes “companies engaged beyond specific levels of involvement in Firearms, Alcohol, Military Weapons, Gambling, and Nuclear Power.”

As of July 2, 2009, the portfolio tracker at MarketWatch.Com reported that KLD had an average volume of 19.6k per day, whereas DSI had an average volume of 7.70k.

Disclosure: the author owns some shares of DSI.