How Green are Wealthfront's Socially Responsible Investing Options?

Learn more about how you can support renewable energy production by including these new choices in your Wealthfront portfolio.

What is Wealthfront?

Wealthfront is a robo-advisor that provides a platform for both banking and investing. The investment side enables users to select general, retirement, or college as their primary goal and builds a recommended portfolio for each client based on a short series of questions. The platform then provides each client with a risk score which can then be changed based on the client's preferences. The risk score ranges from 0 to 10 and increases in .5 increments. Based on the risk score assigned to the user, Wealthfront allocates each user’s funds across a wide variety of asset classes:

  • Stocks
    • U.S. Stocks
    • Foreign Stocks
    • Emerging Markets
    • Dividend Stocks
    • Real Estate Investment Trusts (REITs)
  • Bonds
    • U.S. Government Bonds
    • Treasury Inflation Protected Securities (TIPS)
    • Municipal Bonds
    • Corporate Bonds
    • Emerging Market Bonds

 

In addition to providing users with more flexibility and customization than other robo-advisors, Wealthfront also distinguishes themselves from competitors by not charging any account-opening fees, withdrawl fees, trading/commission fees, or account transfer fees. They do require a minimum of $500 to open an account and charge a 0.25% fee on top of any fees from the underlying funds held in your account.

 

Wealthfront does not have a specifically green option or portfolio for users to select. However, Wealthfront recently provided their clients with the opportunity to invest in Socially Responsible Investing options for no additional fee. While this still requires some leg work and research on the user’s part, it does provide you with more options to invest in a clean energy future and is a step in the right direction.

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How do Wealthfront's Socially Responsible Investing options work?

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.

How directly do Wealthfront’s Socially Responsible Investment options support renewable energy production?

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.

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Performance of Wealthfront Portfolios

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.

 

 

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