Millennials saving cash — and the world

Portfolios target socially responsible investments

Younger generation targets socially responsible investments for 401(k)s

Millennials do many things differently from Mom and Dad: They prefer flexible work schedules to the 9-to-5 grind, and they line up dates on their smartphones.

And a closer peek at their portfolios shows that the largest generation of Americans is trying a different approach to investing, too.

The standard way of divvying up investments — such as the 60% stock/40% bond portfolio — doesn’t get this younger set jazzed up.

Instead, a menu of investments broken down by social causes and environmental friendliness — so-called socially responsible investments, or SRIs — is what attracts them. In fact, Americans in their 20s and 30s are twice as likely as the overall investor population to put their money in companies targeting SRIs, according to Morgan Stanley’s Institute for Sustainable Investing’s 2017 Sustainable Signals report.

So what are SRIs?

It’s a strategy that aims to deliver competitive returns while trying to bring about social, environmental and workplace change. It also goes by the names “ethical investing,” “green investing,” “impact investing” and

“values-based investing.”

Millennial interest in SRIs is having an effect: At the end of 2017, there were

234 mutual funds and exchange traded funds (ETFs) that invested in funds that were screened for environmental, social and governance factors, according to fund-tracker Morningstar. That’s more than double the funds offered in 2012. Assets in these funds have risen 142% since then to $100.2 billion, Morningstar says.

“The assets that go into the socially responsible portfolios have gone through a screening process to make sure they meet the requirements of a particular fund,” says Michael Katchen, 30, co-founder at Wealthsimple, a Toronto-based online investment manager that offers broadly diversified socially responsible portfolios that include stocks and bonds as well as foreign investments.

Nearly nine of 10 Millennials (86%) said they are interested in SRI or sustainable investing, vs. 75% of the total population, the Morgan Stanley study found. A survey by Swell Investing in November found that 54% of Millennials who don’t invest in socially responsible investing options say they plan to in the future, compared with 48% of GenXers and 31% of Boomers.

USA TODAY looked under the hood of a balanced, or moderate risk, socially responsible investing portfolio offered by Wealthsimple.

Here’s a breakdown:

❚ Low carbon (29% of portfolio). Investors who worry about the impact of climate change and global warming on the economy and planet, for example, can gain access to a basket of global stocks that have a “lower carbon exposure” via the iShares MSCI ACWI Low Carbon Target ETF. The fund invests in companies that are “less de- pendent” on fossil fuels than higher carbon-emitting peers. Stocks such as oil giant Exxon and oil driller Transocean, for example, are not holdings in the ETF.

❚ Clean tech (6.2%). In this part of the portfolio, companies that make solar panels, wind power systems, metal recycling technology and parts that go into electric cars are well represented.

❚ Socially responsible (7%). This part of the portfolio is made up of U.S. stocks that leading index provider MSCI says have “positive environmental, social and governance characteristics.” Wealthsimple has chosen the iShares MSCI KLD 400 Social ETF, which consists of a broad range of companies that have passed MSCI’s screening process. That rules out companies in businesses involved with alcohol, tobacco, gambling, civilian firearms, military weapons and adult entertainment, according to the fund’s prospectus. Companies in the fund’s top 10 holdings include Microsoft, Facebook, Procter & Gamble and Walt Disney.

❚ Gender diversity (7.8%). This strategy allows Millennials to invest with a so-called “gender lens,” or investing in companies that support women’s advancement in the workplace. That can mean more women on the board of directors and more in top executive positions, such as senior VP or higher.

❚ Local initiatives (20.3%). The PowerShares Taxable Municipal Bond Portfolio ETF gives Millennials a chance to both spread out their portfolio risk with bonds issued by local and state municipalities, as well as helping to fund and invest in environmentally friendly projects.

❚ Affordable housing (29.7%). Another fixed-income investment, the iShares GNMA Bond ETF, allows Millennials to “promote affordable housing” by investing in residential mortgage-backed bonds that are issued by the U.S. government.