Take a look at the holdings of the iShares Jantzi Social Index® Fund (symbol: XEN) and you will not find that Canadian icon of ordinary life, Tim Hortons (THI). What gives, why doesn't Timmies make the grade that iShares describes this way: "The Index is comprised of securities of Canadian issuers selected by Jantzi based on criteria for identifying companies that reflect a higher standard of environmental and social performance."?
The question is pertinent because Tim Hortons does appear in the standard TSX Index of the 60 largest Canadian companies. In the iShares S&P/TSX 60 Index Fund (XIU) that invests in the TSX 60 index, THI is in 47th spot.
When I compared the holdings of XIU and XEN, no less than 25 companies in XIU comprising about 30% of its total market cap did not make the cut in XEN. Other puzzling deletions compared to XIU - Manulife (why them while Sun Life is in?), George Weston (groceries, how bad can that be?). Unfortunately, as I wrote in yesterday's post, beyond the general statement of the principles it follows, Jantzi does not reveal any details about why specific companies are included or excluded (actually, Jantzi does not even reveal the list of companies in its index, it is only because the ETF publishes its holdings that we can even see that much).
Interestingly, XEN's replacements for those 25 companies (it also holds 60 companies like XIU) were all really small, accounting in total for only 4% of the total market cap of XEN. In other words, XEN in reality just puts a lot more weight on the biggest companies, mainly the banks (e.g. Royal Bank goes from 8.3% of XIU to 11.6% of XEN). Another stat - XEN's top 10 holdings = 62% of the holdings, XIU = 46%. XEN is a significantly more concentrated portfolio than XIU, which is a riskier investing strategy. Also, XEN's MER is 0.5% while XIU's is 0.17%.
Is Tim Horton's really not a socially responsible investment and why not? Is it that their coffee comes from exploitative producers, the litter that emanates from outlets, the food that harms people, employment practices etc? Should we in good conscience not invest and maybe just drive by to the next competitor outlet? Or was it just that Jantzi needed to make space in its index for trendy companies like Zarlink, Jean Coutu and Harry Winston Diamonds? The criteria for inclusion and exclusion of particular companies amongst those who create indexes or funds that follow socially responsible investing principles really needs to be more visible.
Thursday, 29 April 2010
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