The Best M1 Finance Pie for Fossil Free ESG Investing?

M1 Finance is an investing app that lets you create custom portfolios (called “pies”) from over 6,200 stocks and exchange-traded funds (ETFs). The app comes with two responsible investing options made of relatively expensive Nuveen ETFs. So we’ve built an ESG investing pie that is nearly fossil free, low carbon and screened for environmental, social, and governance (ESG) factors. Keep reading to learn how you can invest in the pie.

SustainFi October 22, 2021

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What is M1 Finance?

M1 Finance is an investment platform that lets you build customizable portfolios, called “pies.” The pie model lets you add a stock or an ETF as a slice of the pie. You choose what percentage to invest in each asset.

M1 Finance has a low minimum investment ($100; $500 for IRAs), doesn’t charge management fees, lets you borrow against your portfolio, and buy fractional shares. You can also open an FDIC-insured savings account, earning up to 1% APY and 1% cash back.

Most robo-advisors like Wealthfront and Betterment charge a 0.25% asset management fee ($25 on a $10,000 annually). Instead, M1 Finance makes money from interest on margin loans and M1 Plus memberships. M1 Plus memberships cost $125 a year and give you access to lower borrow rates, an extra trading window, and higher APY and cash back on savings accounts.

🔔 Read the full review of M1 Finance.

Credit: M1 Finance

M1 Finance expert pies

If you don’t want to “bake” your own pies, M1 Finance comes with over 80 expert pies. Expert pies include two ESG pies, the Responsible Investing and the International Responsible Investing Pies. Both pies include Nuveen ETFs.

🔔 Read the full review of the Responsible Investing and International Responsible Investing Pies.

Although the two pies have relatively high environmental, social, and governance ratings, they are quite expensive. The two pies cost 0.38% and 0.39% annually ($38-$39 on a $10,000 investment.) The pies are 100% invested in stocks, but personal finance experts recommend investing some money in bonds to all but the youngest investors.

Creating a custom M1 fossil free ESG investing pie

We’ve created a fossil free, ESG investing pie that is 80% invested in stocks, so it’s still moderately aggressive. The pie includes four low-cost funds from iShares, a large ETF provider.

The pie costs only 0.11% annually, much less than the M1 Responsible Investing Pies, and less than what any robo-advisor charges for an ESG portfolio. Because M1 Finance doesn’t charge a management fee, 0.11% is all that you will be paying.

🔔 Robo-advisor ESG portfolios generally cost 0.16%-0.18%, in addition to management fees. Read our robo-advisor guide to compare.

Here is what the pie looks like:

The funds in the ESG investing pie

The ESG Investing Pie includes four ESG funds from iShares.

U.S. stocks: iShares ESG Advanced MSCI USA ETF (USXF)

Launched in mid-2020, USXF invests in U.S. stocks that have passed advanced environmental, social, and governance screens. Stocks with better ESG scores are prioritized. USXF doesn’t invest in fossil fuels, nuclear power, GMOs, palm oil, private prisons, predatory lending, and more. The fund owns about 300 stocks and has top ESG scores from ESG rating agencies MSCI and Sustainalytics. The fund’s carbon intensity (or the emissions of the companies the fund owns) is about half of that of the S&P 500 index. And it has performed nearly 1.5% better than the S&P 500 over the past year. With a 0.10% expense ratio, USXF is one of the cheapest ESG funds to boot.

Foreign (developed markets) stocks: iShares ESG Advanced MSCI EAFE ETF (DMXF)

Also launched in mid-2020, DMXF invests in an ESG-screened index of developed market stocks ex-U.S. and Canada. Like USXF, this fund screens out fossil fuels, adult entertainment, alcohol, gambling, tobacco, GMO, weapons, nuclear power, firearms, for-profit prisons, and predatory lenders. This fund has high rankings from MSCI and Sustainalytics. DMXF costs only 0.12%.

Emerging markets stocks: iShares ESG Aware MSCI EM ETF (ESGE)

ESGE is by far the largest international stock ESG ETF. The fund invests in stocks from emerging market economies like Hong Kong, Taiwan, and South Korea while attempting to mimic the broad market. ESGE excludes tobacco, weapons, thermal coal, and oil sands companies. It has a small investment in fossil fuels (currently about 3% of the fund), but because only 5% of the ESG pie is in this ETF, the overall impact is negligible. Emerging market ETFs are generally more expensive, and ESGE costs 0.25% annually.

iShares ESG Aware U.S. Aggregate Bond ETF (EAGG)

Established in 2018, EAGG is the largest and cheapest ESG bond fund. EAGG invests in USD bonds with favorable ESG characteristics. The ETF excludes weapons, tobacco, thermal coal, and oil sands. The fund is not completely fossil free (around 1% of the fund is in fossil fuels, according to MSCI), but the impact on the overall portfolio is negligible. This fund costs 0.10% annually, which makes it one of the cheapest ESG bond funds.

Sustainability ratings and fossil fuel exposure

Asset ClassFundExpense RatioESG Fund?Allocation% of Fund in Fossil FuelsMSCI ESG ScoreSustainalytics RatingCarbon Intensity (tCO2e/$m sales)
U.S. StocksiShares ESG Advanced MSCI USA ETF (USXF)
0.10%Yes40%
0%8.45 / 570.3
Foreign Developed Stocks
iShares ESG Advanced MSCI EAFE ETF (DMXF)0.12%Yes35%0%8.95 / 569.2
Emerging Market Stocks
iShares ESG Aware MSCI EM ETF (ESGE)0.25%Yes5%3%7.53 / 5191.3
U.S. BondsiShares ESG Aware U.S. Aggregate Bond ETF (EAGG)0.10%Yes20%1%7.0NA149.1
Portfolio Total0.11%100%0%8.2 / 104.1 / 591.7

Data as of 10/20/2021. Sources: MSCI, Sustainalytics, iShares

The ESG pie is 100% invested in sustainable funds, it has nearly 0% exposure to fossil fuels (compared to about 3% for the S&P 500), its carbon intensity is much lower than a comparable non-ESG portfolio, and it boasts high ESG ratings from MSCI and Sustainalytics. The ESG pie has better ESG ratings than most ESG portfolios offered by robo-advisors.

In comparison, the S&P 500 index has:

  • Carbon intensity of 133 tons of CO2 / $1 million in revenue
  • 6.2 / 10 rating from MSCI
  • 3.0 / 5 rating from Sustainalytics
  • 3% of assets invested in fossil fuels

How much does the ESG pie cost?

The pie costs only 0.11% which is much cheaper than what you would find from any robo-advisor. M1 Finance also doesn’t charge a management fee, so you will only be paying $11 on a $10,000 investment each year.

If you want to get M1 Plus ($125 / year), you can get the first year for free.

How has the ESG investing pie performed?

You can see the pie’s historical performance here. As of October 20, 2021, the ESG Investing Pie returned 19.3% over the past year.

Note: performance prior to June 2020 is not available because some of the funds included in the pie were only launched then.

Automatic rebalancing

M1 Finance will automatically adjust your holdings if the portfolio strays from the predetermined asset allocation when you add or remove money from your account. You can also make M1 Finance rebalance your pies whenever you want by clicking the Rebalance button on the dashboard.

Unless you make new trades, M1 Finance won’t rebalance your portfolio without authorization from you.

How to create your own M1 Finance pie

You can also build your own pie. Here’s how to do that:

  • Go to the menu in the Research tab and click on My Pies
  • Click on the plus sign in the top right in the app (or the “Create New Pie” button on the web) and add a new Custom Pie
  • Choose from over 6,200 stocks and funds using the pie creation tool
  • M1 Finance doesn’t automatically invest in each pie you create. To invest in your custom pie, you need to add it to your portfolio by clicking on the “Add to Portfolio” link in your My Pies screen

🔔 Want to compare more options? Read our guide to ESG robo-advisors.

NOT INVESTMENT ADVICE. The content is for informational purposes only; you should not construe any such information as investment advice.

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