As financial advisors, we consistently find ourselves having to dig deep to truly understand the purpose of certain investments. We find ourselves navigating jargon, intentionally confusing language, and of course, as many abbreviations as our industry can muster.
Among the positives that we find, we do stumble across the occasional attempt to take advantage of people with good intentions. Some of the best examples tend to happen on either end of the political spectrum. You've got examples of "patriotic" funds that only invest in 'non-woke' companies that hold good-old-fashioned American Values. On the other end of the spectrum is funds that claim to hold environmentally conscious companies that are trying to make a difference.
The reality is, many of these funds fail to disclose the truth about how they operated, despite their seemingly legitimate marketing and their approval by regulators. They even have full prospectuses – and no one reads through those, right?
Wrong – Upon further review, Matt and I found some glaring problems.
Patriotic ETFs
The high-performing, patriotically themed investment. A certain segment of the population is ripe for the taking here. Why wouldn’t I buy this? It promises financial gains while aligning with “patriotic values”! The reality is, there is no real description for how the fund managers go about screening. It’s just at the beck and call of the fund manager to decide whether the investment is patriotic or not.
"Greenwashing" in Action
Across the political spectrum, we find the other side of the same coin: greenwashing. Some funds advertise themselves as adhering to rigorous environmental, social, and governance standards, which attracted investors who share those values to invest with them. However, under the hood, this can overstated – and these funds get scrutinized and fined for misrepresentation.
So What?
The point is, don’t buy something without looking under the hood. Your values as an investor are extremely important, and there is a place for values-based investing in your portfolio. But that doesn’t mean that every investment is what it claims to be. Do research, call your advisor, and take time to review what you decide to invest in. Do your due diligence and don’t buy anything that you don’t understand.