Vanguard VTI vs arnie portfolio

The chart compares the historical performance of the Vanguard Total Stock Market ETF (VTI) against a hypothetical Arnie portfolio constructed using an optimization of the underlying constituents of VTI (as of 01/29/21), subject to several constraints. The universe of stocks subject to the optimization was created by first removing all offending companies for each sustainability metric (i.e. all top 200 owners of carbon reserves, oil & gas producers & pipeline operators, coal & natural gas powered utilities, military contractors & nuclear weapons manufacturers, gun manufacturers, private prison operators, incarceration & detention facilities and companies servicing them, companies involved in immigrant incarceration, detention, monitoring & surveillance at the US-Mexico border, companies directly contributing to deforestation, and tobacco companies). Financial institutions, tech, and other companies only peripherally involved in the prison industry were not excluded, and certain companies with limited price history or sustainability data were removed. Out of the remaining companies, the top 150 by weight were selected as the optimization universe, with weights normalized subject to a 5% position cap. A mean variance optimization to maximize the sharpe ratio was run on the resulting target weights (data from 01/2016-01/2021), with positions constrained to a maximum of 1.25% of their target weight (retaining a 5% position cap, and a lowest maximum weight constraint of 1%). The results of the optimization (i.e. the hypothetical Arnie portfolio) were backtested in comparison to the unmodified VTI ETF using monthly rebalancing back to the intended model, dividend reinvesting, no management fee consideration, and 5 years of return history. The chart shows a hypothetical starting value of $100,000 for the Arnie portfolio and VTI ETF. 

 

Past performance is no guarantee of future results, which may vary. All use is subject to Arnie’s terms of service. Investing involves risk, including possible loss of principal. The value of the investments and the income derived from them may fluctuate over time. All portfolio returns presented are hypothetical and backtested. Hypothetical returns do not reflect trading costs, transaction fees, or taxes. The results are based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete. The results do not constitute investment advice or recommendation, are provided solely for informational purposes, and are not an offer to buy or sell any securities. The results are based on the total return of assets and assume that all received dividends and distributions are reinvested. The sharpe ratio is calculated and annualized from monthly excess returns over risk free rate (3-month treasury bill). Stock market correlation is based on the correlation of monthly returns.

Fund Score Methodology

We calculate an overall fund score based on a weighted average of the scores of each underlying metric: 30% carbon reserves, oil & gas, coal & natural gas; 25% military & nuclear weapons, gun manufacturers, landmines & cluster munitions; 25% prison industrial complex, militarization of US-Mexico border, private prison operators; 10% deforestation; 10% tobacco. The overall score is shown relative to nearly 3000 funds in our database.

Metric explanation and data sources

Carbon Reserves Data Source: The Carbon Underground 200™, compiled and maintained by FFI Solutions, identifies the top 100 coal and the top 100 oil and gas publicly-traded reserve holders globally, ranked by the potential carbon emissions content of their reported reserves.

 

Oil & Gas Data Source: Companies from six Morningstar sub-categories: drilling, extraction and production, integrated, midstream, refining and marketing, and equipment and services. It also includes the top 100 oil/gas reserve holders from the Carbon Underground 200™.

 

Coal & Natural Gas Data Source: Companies from four Morningstar sub-categories: independent power producers, diversified, regulated electric, and regulated gas. Any companies in these categories that are engaged in 100% renewable operations, pure transmission, or otherwise don't burn fossil fuels to generate power are not flagged. 

 

Military and Nuclear Weapons Data Source: Major military contractors are tracked using the Stockholm International Peace Research Institute (SIPRI) Arms Industry Database. The database contains information on arms-producing and military services, including financial data for arms-producing companies in the OECD and developing countries (except China) based on open sources. The public companies from this top 100 list (last updated with 2017 data) were used to screen for major military contractors. Nuclear weapon manufacturers or servicers are tracked using a report from the non-profit organization PAX. Public companies identified as nuclear weapon manufacturers or servicers in PAX's Don't Bank on the Bomb (2019) were used to screen for nuclear weapons.

 

Gun Manufacturers Data Source: Manufacturers of civilian firearms and ammunition are tracked using data from a number of open-source investment research providers, including GoodbyGunStocks, a fund screener designed to show which funds owned which gun companies.

 

Landmines and Cluster Munitions Data Source: Manufacturers of cluster munitions and landmines are tracked using research reports from non-profit organizations PAX and the International Campaign to Ban Landmines. Public companies identified as banned weapon manufacturers in PAX's Worldwide investments in Cluster Munitions A Shared Responsibility (2018), the International Campaign to Ban Landmines's Landmine Monitor (2017), or the International Campaign to Ban Landmines's Cluster Munitions Monitor (2017) were used to screen for cluster munition and landmine companies.

 

Private Prison Operators Data Source: Companies identified as private prison operators have been flagged by the American Friends Service Committee (AFSC)’s The Investigate Project as directly operating or managing private prison or immigrant detention facilities. The Investigate Project tracks companies involved in oppressive state violence structures in order to promote standards for corporate social responsibility and respect for human rights. Their research database highlights and profiles the main publicly-traded companies involved in the prison and border industries.

Prison Industrial Complex Data Source: This metric flags companies involved in incarceration and detention facilities (including facility management, youth and family detention, private facilities internationally, private prison financing, transportation and deportations, facility surveillance and security, and prison labor), services in facilities (including communication services, health services, banking and financial services, and food, commissary, and other goods), and supervision and monitoring (including e-carceration, community corrections, and bail bonds). The data is sourced from the American Friends Service Committee (AFSC)’s The Investigate project, which tracks companies involved in oppressive state violence structures in order to promote standards for corporate social responsibility and respect for human rights. Their research database highlights and profiles the main publicly-traded companies involved in the prison and border industries.

Using a scoring rubric based on company data from AFSC’s Investigate Project, some companies are identified as higher risk. These companies received the worst scores on AFSC’s Investigate scoring rubric, based on an assessment of three criteria: the salience of the human rights violation, the company's responsibility for the violation, and the company's responsiveness. The existence of higher risk companies in a fund more negatively impacts the fund’s score for the Prison Industrial Complex metric.

Militarization of the US-Mexico Border Data Source: This metric flags companies involved in incarceration and detention facilities (including facility management, youth and family detention, private prison financing, facility surveillance and security, transportation and deportations, and prison labor), militarization of the U.S.-Mexico border (including border construction and maintenance and border monitoring and surveillance), and immigrant monitoring and surveillance (including high-tech surveillance of immigrants, e-carceration, and bail bonds). The data is sourced from the American Friends Service Committee (AFSC)’s “The Investigate project,” which tracks companies involved in oppressive state violence structures in order to promote standards for corporate social responsibility and respect for human rights. Their research database highlights and profiles the main publicly-traded companies involved in the prison and border industries.

Using a scoring rubric based on company data from AFSC’s Investigate project, some companies are identified as higher risk. These companies received the worst scores on AFSC’s Investigate scoring rubric, based on an assessment of three criteria: the salience of the human rights violation, the company's responsibility for the violation, and the company's responsiveness. The existence of higher risk companies in a fund more negatively impacts the fund’s score for the Militarization of the US-Mexico Border metric.

Deforestation Data Source: Companies that produce and trade palm oil, paper/pulp, rubber, timber, cattle, and soy, and have a past record or a significant risk of contributing to deforestation, land grabbing, and human rights abuses. The data comes from several sources: the Zoological Society of London (ZSL) Sustainability Policy Transparency Toolkit (SPOTT), which assesses commodity producers and traders on the public disclosure of their policies, operations and commitments related to environmental, social and governance issues. SPOTT scores tropical forestry and palm oil companies annually against over 100 sector-specific indicators to benchmark their progress over time; Forest 500, which identifies and ranks the most influential companies and financial institutions in forest risk commodity supply chains as we shift to a deforestation-free economy; the Supply Change Initiative from Forest Trends, a resource for businesses, investors, governments, and the civil society organizations that support and hold them accountable, providing information on the extent and value of commitment-driven commodity production and demand; Roundtable on Sustainable Palm Oil (RSPO); BankTrack, the international tracking, campaigning and CSO support organization targeting private sector commercial banks and the activities they finance. 

 

Tobacco Data Source: Companies that either produce tobacco or manufacture tobacco products, as identified by Morningstar industry categories.