Easy as Pie Portfolio

Investing comes with risk. This article is a general discussion of the merits and risks associated with these ETFs, not a specific recommendation. Speak to an investment professional and make sure your portfolio is diversified. Tim Nash owns shares of CLG in his personal portfolio. Tim does not own shares of the other funds mentioned in this article.

Divesting from fossil fuels just got a lot easier. In March 2019, Desjardins launched the Desjardins RI Global Multifactor Fossil Fuel Reserves Free ETF (DRFG).

This portfolio is the absolute simplest I could make it. It is 100% RRSP and TFSA eligible, and the annual management fee is 0.47%.

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Global Equity 60% Desjardins RI Global Multifactor Fossil Fuel Reserves Free ETF (DRFG)

Government Bonds 30% iShares 1-10 Year Laddered Government Bond Index ETF (CLG)

Impact Bonds 10% Oikocredit Global Impact GIC

Global Equity

The Desjardins RI Global Multifactor Fossil Fuel Reserves Free ETF (DRFG) is a welcome addition to the Canadian responsible investment market. It completely excludes the oil & gas, pipelines, coal miners, and utilities with more than 10% generation from coal. It also excludes companies with a low sustainability score for environment or social or governance. I highlight the or, since most funds use a combined ESG score across all three categories that allows some deviant firms to sneak through if the other scores are high enough (looking at you facebook). DRFG also excludes tobacco, controversial weapons, and companies with major controversies.

Going through the list of holdings, I still see some problematic companies like Nestle, Walmart, and Goldman Sachs. These will be deal-breakers for some people and not for others. As the most diversified socially responsible and fossil fuel free ETF on the market right now, DRFG is a great option for people to get rid of the worst companies while divesting specifically from tobacco, controversial weapons, and / or fossil fuels.

DRFG does a good job of tracking the traditional global equity diversification across geography and business sector. Breakdowns are similar to the standard benchmarks like the All Country World Index. What's different is that DRFG uses a "multifactor approach" to determine portfolio weightings (the % for each company). Multi-factor models use financial data like volatility and profitability ratios to optimize for risk-adjusted returns. It's basically an algorithm that tries to outsmart the market, rather than simply investing more heavily in bigger companies. I don't see it as a good or bad thing necessarily, but it does mean that investors will have more exposure to medium and small companies and less exposure to big companies.

DRFG has an MER of 0.69%.

Government Bonds

Since every Canadian corporate bond index includes fossil fuels, we are left with government bonds. Lots of my clients have been flocking towards the iShares 1-10 Year Laddered Government Bond Index ETF (CLG). It’s a solid government bond portfolio, and the ladder will capture the higher rates more quickly be nice if interest rates start to rise. I like it because of the low MER of 0.15%.

Impact Bonds

Instead of just ‘doing less bad’, as sustainable investors I think it’s important that we also do more good. To that end, I’m allocating 10% of this portfolio to the Oikocredit Microfinance. Oikocredit is a global microfinance organization that was established in 1975. It’s a co-op that finances and invests in fair trade organisations, other co-ops, microfinance institutions, and small businesses in 63 developing countries. I know some people are sceptical about microfinance, but this organization is amazing. I strongly suggest checking out their annual report. Microfinance is a great way for Canadian investors to maximize their impact, since our currency is so strong relative to other countries. $1,000 CAD loaned to social enterprises in Ghana, Chile, or Mongolia will have a much bigger impact than that same $1,000 CAD loaned to Canadian organizations.

There are two provinces that get to invest. Ontario residents can buy the Kindred Oikocredit Global Impact GIC, while BC residents can buy the Vancity Shared World fixed term deposit. These are the lowest-risk investment impact investment in Canada. It’s quite genius, because you’re buying a Guaranteed Investment Certificate (GIC) or fixed-term deposit from the credit union, who then matches your investment in buying shares in Oikocredit. This reduces your exposure to risk, while making your investment RRSP eligible. GICs and term-deposits are the only type of investment with a ‘guaranteed’ return since they are insured by DICO in Ontario and CUDIC in BC. With low risk comes a low return. The Kindred 3-year GIC currently pays 2.3% annually while the Vancity 12-month term deposit pays 1.65% annually. Both options have no MER. 

Conclusion

This portfolio is by far the easiest way for Canadian investors to divest from fossil fuels, while getting exposure to the broad global stock market. Since all of the funds are in Canadian dollars, it's perfect for a TFSA or RESP. As always, it is fully customizable so investors can choose a different impact fund or add green sector ETFs. 

Like this portfolio and want help buying it? Check out my coaching services at https://www.goodinvesting.com/

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followed this page 2019-02-25 18:02:12 -0500
commented 2015-08-27 13:20:29 -0400
Interesting portfolio approach. So here’s my question: which online brokers actually offer F-series funds? I tried to purchase an Inhance fund through my existing TD Waterhouse account and was told I wasn’t permitted to purchase that fund class unless I worked with one of their (presumably fee-based) advisors. I then contacted Credential Director, an outgrowth of the credit union movement, and they also told me F-series funds were verboten.
Don't let your money do things you wouldn't