Socially responsible investing (SRI).

In plain English

Socially responsible investing applies a values filter to a portfolio, keeping out companies or whole industries an investor does not want to own regardless of how those businesses are performing. That is called negative screening, and the common exclusions are tobacco, weapons, gambling, and fossil fuels. Screens can also be positive, favoring companies that meet a stated standard. Because a screen removes part of the market, the resulting portfolio behaves differently from a broad index, sometimes better and sometimes worse. What counts as responsible is defined by the fund rather than by a regulator, so two SRI funds can hold very different things.

01Why it matters

A fund's label tells you far less than its holdings list, so reading what a screened fund actually excludes is the only way to know whether it matches the values you had in mind.

02The math, step by step

Say a broad index holds 500 companies and an SRI screen removes 60 of them. The remaining 440 get reweighted, so the fund tilts toward whichever sectors survived the screen, which changes its risk profile.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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