How to Build an LGBT-Friendly Investment Portfolio

Investing, Investing Strategy
How to Build an LGBT-Friendly Portfolio

Every publicly traded company publishes quarterly results, such as revenue and earnings per share. But many investors are just as interested in whether businesses achieve these results while being socially inclusive. For some investors, this involves owning shares in companies with LGBT-friendly office environments, and hiring and business practices.

Results suggest that these practices may well improve returns. A 2016 Credit Suisse report found that a basket of 270 LGBT-friendly stocks outperformed a broad index by three percentage points in the prior six years. And Denver Investments Wealth Management’s Workplace Equality Index of LGBT-friendly companies beat the S&P 500 index by nearly four percentage points in 2016.

“There is something behind LGBT-inclusive practices that spills over to all employees,” says John N. Roberts, partner and portfolio manager at Denver Investments. “Our 20 years of research suggests that when companies treat their employees better they get better performance, and that leads to higher shareholder returns.”

If you’d like to add more LGBT-friendly companies to your portfolio, here are a few ways to start.

Researching companies

Denver Investments’ Roberts has this tip: Go beyond SEC filings and other corporate communications. “We spend a lot of time talking to employees, rather than just talking to management,” he says. “We’re looking for companies that walk the walk versus those that just talk the talk.”

Websites such as Glassdoor.com, where employees comment on their current and former employers, might give you an initial read on inclusivity. You can also check:

Corporate Equality Index: The CEI rates businesses’ LGBT-inclusivity on a 100-point scale. The Human Rights Campaign developed this index in 2002 and has been updating it annually since. More than 500 businesses earned the top score in 2017. 

Credit Suisse Report on LGBT Investing: This 2016 report examines the relationship between diversity, especially LGBT-friendly practices, and investment performance. It suggests that diversity — including an active pro-LGBT culture — is associated with substantially higher stock returns. 

Trillium Investing in Equality Report: This 2016 report explains how to support LGBT-inclusion while investing in publicly traded companies. It suggests companies to watch and includes case studies of companies that have dealt with LGBT-related challenges.

Investigating investments

At least two asset managers offer indexes that track LGBT-friendly companies, and both have ETFs associated with them. You can review the indexes for investment ideas.

Workplace Equality Index: Denver Investments developed this index in 2001. It includes companies with LGBT-friendly policies — such as partner medical insurance — that do business and trade publicly in the U.S. Over the last five years the index has returned 140% versus an 89% return for the S&P 500 index. The ETF, which was created in February 2014, has returned slightly less than the S&P — 37.5% to 39.8% — since inception.

Credit Suisse LGBT Equality Index: This index, developed in 2013, includes only companies that score an 80 or better on the Human Rights Campaign’s CEI. The ETF is available only to Credit Suisse’s Private Banking USA clients.

Finding a financial planner

A financial advisor who specializes in LGBT issues can help you find inclusive investments, as well as provide more comprehensive financial advice. Look for one with the Accredited Domestic Partnership Advisors designation from the College for Financial Planning. These advisors must complete coursework and pass a test on LGBT-related issues, including wealth transfers, taxes and end-of-life needs for domestic partners. Wells Fargo was reportedly the first bank to require its financial planners earn the ADPA designation.

The following sites’ free, searchable directories can help you find a nearby financial planner.

Make sure you understand how your financial planner is compensated and whether he or she abides by the fiduciary standard, a requirement that any advice you receive must be in your best interest. Before picking one, read more about how to research an advisor.

James F. Royal, Ph.D. is a staff writer at NerdWallet, a personal finance website. Email: jroyal@nerdwallet.com Twitter: @JimRoyalPhD.