How Green are Wealthfront's Socially Responsible Investing Options?

Currently Wealthfront clients can choose to add the following socially responsible ETFs to their portfolios:

• iShares ESG Aware MSCI USA ETF – invests in mid to large sized US companies, including some with fossil fuel interests
• iShares ESG Aware MSCI EAFE ETF – invests in mid to large sized companies outside of North American, including some with fossil fuel interests
• iShares ESG Aware MSCI EM ETF – invests in mid to large sized companies in emerging markets, including some with fossil fuel interests
• iShares Global Clean Energy ETF – invests in mid to large sized companies around the world who are building or producing renewable energy. Includes a handful of fossil fuel assets held by the same companies.
• iShares ESG Aware US Aggregate Bond ETF – a domestic bond fund which has an ESG screen to exclude the following items: civilian firearms, controversial weapons, tobacco, thermal coal and oil sands

Because Wealthfront’s method is fairly flexible, users can choose to add one or more of the Socially Responsible funds listed above.  They do note that their ability to provide their users with tax-loss harvesting (one of the benefits of robo-advising) is limited when these funds are included. The rest of your portfolio will still receive this service, but the portion included in these funds will not. As these options were first offered to clients at the end of April 2021, it is likely that they will be able to expand this benefit to these funds in the future.

Of the five Socially Responsible Investment options provided, only iShares Global Clean Energy ETF has any exposure to renewable energy. The other funds included may meet certain ESG requirements, but none directly support renewable energy and all contain significant fossil fuel assets.  It should be noted that iShares Global Clean Energy ETF also has some exposure to fossil fuel products. It holds a variety of electric utilities from around the world which install and produce renewable energy but may also have some legacy facilities which run on natural gas or coal. This applies to a bit under 2% of the assets held in this fund. Overall, however, 32% of the fund’s assets are directly invested in renewable energy production.

If you are a Wealthfront client already or considering opening an account with them, you should consider adding the iShares Global Clean Energy ETF from their basket of Socially Responsible Investments to your portfolio. It is an easy way to invest in renewable energy production around the world. GreenPortfolio hopes that in the coming months, Wealthfront will add more green investing options for their users and expand their ability to provide tax-loss harvesting on these products.

Wealthfront is extremely transparent about reporting how their differently risked portfolios have performed historically. You can go to their site and use a simple tool to see how different portfolios have faired based upon the level of riskiness.

For a portfolio with a risk score of 5 (middle of their 0 to 10 scale), they provide the following historical performance broken down by whether your funds are in a taxable or non-taxable account. As of April 30, 2021, average returns were:

• Taxable portfolios:
  • 1 year: 34.08%
  • 3 year: 10.45%
  • 5 year: 10.43%
• Tax-advantaged portfolios:
  • 1 year: 28.74%
  • 3 year: 11.08%
  • 5 year: 10.24%

There are returns net of fees (so after fees have been taken out), but before taking into account any tax savings. As their Socially Responsible Investment options are extremely new, they are not included in these calculations. They have not yet updated their performance metrics to include these new options.

However, for the one fund we recommend you consider including in your account, iShares Global Clean Energy ETF, you can refer to the historic returns reported directly by the fund itself as of March 31, 2021:

• 1 year: 154.13%
• 3 year: 38.77%
• 5 year: 22.84%

Hopefully, Wealthfront will soon update their reporting capabilities to include these new Socially Responsible funds so that you can see historical returns which include these assets in a sample portfolio which includes this fund before purchasing.