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Focus on animal welfare guides 2 vegan funds

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Karner Blue has Chipotle in its portfolio as it likes the chain's animal welfare efforts.

New York

INVESTING well is hard enough, and introducing your personal values into the mix only compounds the confusion.

What matters most? How can I have the biggest impact? And am I a traitor to myself if I own stocks in companies I would otherwise shun?

Consider just one issue that inspires deep feelings: Animal welfare. It is one of the newest niches that socially responsible investment companies seek to serve, and it offers a useful template for the kinds of questions that all of us need to ask if we want to craft a portfolio that points the same way as our moral compass. There are two noteworthy examples of how one can attempt this.

First, the US Vegan Climate ETF. It is an index of sorts, with 268 American stocks, and it begins with subtraction: removing companies, and even whole industries, that it considers animal unfriendly. Pharmaceuticals? Poof, because of all the animal testing. Companies that extract and refine fossil fuels are gone, too. After all, animals are outdoors more than we tend to be, so climate change threatens many of them even more than us.

The Karner Blue Animal Impact Fund, named for the endangered butterfly, takes a different approach. It is an actively managed mutual fund, with less than half the number of stocks as Vegan ETF, including companies not based in the United States.

Another big difference: It employs so-called positive screening, picking best-of-breed companies in as many industries as it can stomach.

"We are not animal avoidant," said Vicki Benjamin, president of Karner Blue Capital. "We are animal engagement." This gets tricky rather quickly, and it may mean something like the following when it comes to the raising of meat, according to Ms Benjamin, who is not a vegan but tends to stray from a plant-based diet mostly in the piscine direction: People are going to eat animal flesh for a good long while, so why not treat the animals better?

Do that, and it becomes more expensive to raise animals, since you're doing so humanely, which is a good thing. The cash cost of eating meat will go up, people will eat less and emissions will fall.

That's how Karner Blue ends up with Chipotle in its portfolio: It likes the chain's animal welfare efforts (ongoing food safety questions aside). But the parent of Burger King didn't make the cut, even though it's got a vegetarian Whopper with an Impossible Burger patty these days. That's because the parent, Restaurant Brands International, also owns Popeyes, which only recently agreed to take a big step to improve its treatment of chickens.

Because of its desire to direct capital to above-average companies in as many industries as possible, Karner Blue sometimes ends up in a situation where it's effectively buying the best house in a bad neighborhood.

Take retail, home to lots of chains selling lots of animal skin. Karner Blue owns H&M, because it appreciates the chain's stance on staying away from leather that comes from animals raised on rainforest land. The fund manager is less fond of the fact that consumers don't tend to keep the retailer's cheap clothing for very long. "We have a problem with the sustainability of the product," Ms Benjamin said. "You have to hold your nose sometimes." The other approach involves compromises, too.

The Vegan ETF nixes fossil fuel companies, but it still owns stock in car manufacturers that make gas-powered vehicles with leather interiors. Here, the fund's creator, Beyond Investing, saw an opportunity to push the car companies towards skin-free seating, given that Tesla has made that move with some models.

"We think that means others should change as well," said Claire Smith, chief executive of Beyond Investing, which runs the Vegan ETF.

Scour her holdings and you'll probably find something that is personally objectionable. I wouldn't want to own Intuit, given all of the reporting from Pro Publica about how it tried to keep people from filing their income tax returns for free. Equifax makes an appearance too, which hurt my heart. We people are animals too, after all, and Equifax treated us shabbily in the wake of its horror show of a security breach.

And what price perfection, or only modest imperfection, in pursuit of a portfolio that is as close to morally pristine as can be? New funds tend to be costly, and these two are no exception.

The Vegan ETF features a fee of 0.60 per cent, which is a lot for an index fund. Let's say you put US$2,500 into an everyday index fund that only requires a 0.10 per cent fee. And let's also say that you do that every year for 45 years and earn a 6 per cent annual return. The fund with a 0.60 per cent fee ends up with US$471,456, while that lower-fee fund ends up with US$547,100. That US$75,644 difference is real money, and it could go a long way towards advancing any of your chosen causes.

Ms Smith said the company has every intention of starting to reduce fees once it passes US$50 million or so in assets. Right now, she said, there was about US$15 million in the ETF.

Karner Blue funds can cost even more, though the exact amount depends on how much you invest and whether you're using a financial adviser. Ms Benjamin said that investors know what they're signing up for, including the fact that the fund's overarching organisation also features an animal welfare advocacy and research organisation, a political action committee and a foundation. And, she said, the fund managers themselves are constantly pressing company executives for changes in their animal impact policies.

As with any socially conscious investment, questions about performance always linger somewhere in the background, even though research has shown that this sort of investing need not mean sacrificing returns that match the overall stock market.

Still, the focus on animal welfare is narrow enough that it could skew the holdings in a direction that is not ideal if you care about having an allocation of financial assets that matches a prominent, diverse stock index. NYTIMES