This is the second post in our series on ethical investing. This series is focused on expanding the concept of “voting with our dollars” to encompass investing along with other spending.  (For more information on how we try to direct our spending towards “good”, check out The Goodness Challenge.)

The goal of this post was to find out just who we’re supporting with our investment dollars.  (If you like, you can check out our first post here: Investing in Good, Green and Ethical Companies.)  In preparation, I researched all of the investment funds Andrea and I currently own.  Some of these funds were handpicked and others were selected for us through Employee Investment Programs at various companies.

What we own

As it stands today, Andrea and I hold a total of 10 mutual funds.  They look something like this.

1)   A Canadian equity index fund
2)   Another Canadian equity index fund
3)   A money market fund
4)   A segregated guaranteed investment fund
5)   Another segregated guaranteed investment fund
6)   A Canadian bond index fund
7)   A Canadian growth fund
8)   An international equity fund  (Don’t even ask)
9)   A Canadian dividend fund
10) A Canadian balanced fund

Why so many funds?

Our goal was never to invest in this number of funds; however, each time one of us started working for a new company, we would be given a new set of mutual funds from which to choose.  And so here we are!

Furthermore, our investment capital isn’t spread equally across all 10 funds.  In fact, much of our capital (about 50 percent) is invested in a Canadian equity index fund.  (As a side note, I prefer index funds for their low Management Expense Ratios (MERs).)

My investigative process

Once I had a clear understanding of which funds we owned, I set out to understand what exactly was in these funds – who and what we are funding.  I started the investigative process by printing out all of the investment summary reports for each fund we owned.  I then captured the top companies that made up each of these funds along with what percentage of the overall fund they comprise.

So who are these companies, anyway?

8 out of our 10 funds are focused on the Canadian market – largely to take advantage of retirement savings tax breaks. Of these Canadian funds, it turns out that the same companies show up repeatedly across our portfolio.  From my initial investigation only, I learned that we have invested in the same Canadian bank 7 times over.  Similarly, the top 5 companies in all of our funds are largely the same.  Clearly, we are not nearly as diversified as we thought.  (If these 5 companies don’t do well, we’re pretty much hosed.)

In the interest of full disclosure, here are our top repeated investments across mutual funds.
1)   Royal Bank of Canada (7 times)
2)   Bank of Montreal (5 times)
3)   Suncor Energy (5 times)
4)   Bank of Nova Scotia (4 times)
5)   Barrick Gold Corporation (4 times)
6)   Potash Corporation of Saskatchewan (4 times)
7)   Canadian National Railway (4 times)
8)   Cenovus Energy (3 times)
9)   Enbridge (3 times)
10) Canadian Natural Resources (3 times)
11) TD bank (3 times)

This brings me back to our original point – who and what are our investment dollars supporting.  By looking at this list, you would think that we are passionate about supporting major banks, energy companies and mining corporations, but this is truly not the case.

Down the rabbit hole

I must admit that my research stopped when I started looking into one of our mutual funds that was made up of other mutual funds.  At this point, my eyes crossed and I threw up my hands in defeat.  I now wholeheartedly accept that we do not have nearly as much awareness of our investments as we’d thought.

For us, this is a major concern.  How could we know so little about how the companies within our mutual funds operate?  We’ve realized that we’re likely missing an opportunity to redirect our capital towards companies that have a direct impact on reducing pollution, encouraging healthier living and advocating higher standards in labor practices.  Now to find these companies – and positive returns.

What we’ve learned

1. We now know that something needs to change. We’re pretty sure it’s “out with the old”, but we’re not so sure what will encompass “the new”.

2. We know we need to make a clear list of what’s important to us from an investing standpoint. This will be used to evaluate our potential investment options.

3. We’re pretty sure that access to information about where our capital is spent (i.e. transparency) will be on our list of criteria.

4. Moving away from mutual funds is an option. We could have directly invested in the 5 companies that make up the bulk of our portfolio and avoided all management fees. Hmmmmm.

In short, we’re not yet sure where this analysis will take us.  We still have a lot of work to do.  Next up we’ll define our own investment criteria to be used for evaluating our current investments and other investment options. 

Interested in what we decided. Check out our next post – In With The New.


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Carl

About the Author

all around good guy.

2 Responses to Ethical Investing: Out With The Old

  1. kool says:

    I learned that you have to be careful when you’re investing in sustainable or green funds even if they show you their “eco-label”. Here in france some banks’ funds are invested in oil companies or even gun manufacturers. That’s not the future I want to invest in.

  2. Andrea says:

    Kool, thanks for your comment. We’re not experts by any stretch, but we’ve learned the same thing. You really have to dig below the surface to find out what a company is all about. Big marketing budgets can be a big distraction.

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