What is Betterment?
Betterment is a financial advisory company that provides robo-advising and cash management services. It is primarily known for its intuitive, user-friendly mobile platform and goal-specific portfolio building through ETFs. Betterment determines each user’s portfolio strategies by asking a series of questions about time horizon, investment preference, and goals.
Betterment is now differentiating itself from other investment platforms by focusing on “Socially Responsible Investing”. They currently offer three different impact investing options:
- Broad Impact: contains ETFs which meet certain Environmental, Social, and Governance (ESG) measures
- Social Impact: similar to the Broad Impact above, but with the addition of Impact Shares’ NAACP Minority Empowerment ETF and State Street’s Gender Diversity ETF
- Climate Impact: contains “green” ETFs and other investments – read on to learn more
Open a Betterment Climate Impact Portfolio
Greening your portfolio just got easier! Rely on Betterment to choose investments that support renewable energy for you.
How does Betterment's Climate Impact Portfolio work?
According to Betterment, their Climate Impact Portfolio “lets you support areas of the economy that are working to mitigate climate change while maintaining a diversified portfolio with low expenses.”
The Climate Impact Portfolio consists of four different ETFs and a bond fund:
- iShares MSCI ACWI Low Carbon Target ETF (CRBN): tracks the stock market globally while attempting to include companies that have a smaller carbon footprint
- Three ETFs that exclude companies which own fossil fuel reserves (but may still have exposure to fossil fuels):
- SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX): essentially the S&P 500 with companies that hold fossil fuel reserves (oil, gas, coal, etc) removed
- SPDR MSCI EAFE Fossil Fuel Reserves Free ETF (EFAX): an ETF that invests in companies outside the United States, but without any companies that hold fossil fuel reserves
- SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (EEMX): an ETF that invests in companies in emerging markets, but without any companies that hold fossil fuel reserves
- iShares Global Green Bond Fund (BGRN): a bond fund that funds environmental projects around the world through green bonds. Some of these projects involve renewable energy production
If you invest in Betterment’s Climate Impact Portfolio, only a small portion of Betterment’s Climate Impact Portfolio will end up directly resulting in renewable energy production. However, if you are looking for a diversified portfolio that minimizes, but may not eliminate, fossil fuel investments while also holding bonds investing in renewable energy – this is a pretty good fit.
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Performance of Betterment’s New Sustainable Products
In October 2020, Betterment announced "two additions to its socially responsible portfolio offering…with a Climate Impact portfolio and a Social Impact portfolio.” Betterment’s sustainable investment strategy focuses on “environmental controversies related to energy and climate change, land use, biodiversity, toxic spills and releases, water stress, and/or operational waste.”
Betterment recognizes that investors are concerned about both the performance and cost of SRI portfolios compared to typical portfolios. When this article was written, the fees for sustainable portfolios are equivalent to those for traditional investment mixes.
These products are new to this investment platform but because they hold external funds with longer track records, it is still possible to examine the performance of these products through something called a backtest. This is only available for these products since 2018, but an analysis by Betterment found that the Climate Impact Portfolios has outperformed the Betterment Core portfolio. For the last period they analyzed, November 28, 2018 to September 16, 2020, The Climate Impact Portfolio had a cumulative return of 22.3% versus 15.9% for Betterment Core Portfolio.
Investors can enable the Clean Impact Portfolio in the Betterment app by adding a new goal or updating their current goals strategy. It is a good option for people looking for green diversification without having to manage their investments day to day on their own.
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