| NEW YORK, March 9
NEW YORK, March 9 It's a different kind of
A growing number of Americans are deciding to base their
investment decisions on principles ranging from their religion
to their concerns about the environment. Financial advisers
managed nearly $3.1 trillion in assets in 2010 using so-called
socially responsible strategies, according to industry group US
SIF, up from just $600 billion in 1995.
It's a long way from the late 1970s, when most social
investors were more concerned about what they wouldn't buy than
what they would. Typical taboo lists included companies involved
in the production of tobacco, alcohol, weapons or nuclear
Now, however, some socially-minded investors are starting to
put as high a value on performance as well. For financial
advisers, that means managing a client's socially screened
portfolio can require an additional layer of research to keep
pace with or outperform the broader market.
Here are suggestions on ways investors enrich themselves
without sacrificing their values:
ESTABLISH YOUR SCOPE
The first step in any socially-screened investment strategy
is to establish the universe of available companies.
This depends on the investor in question, of course. For
those who want to focus on companies that have sustainable
practices -- generally defined as things like working to lessen
a company's environmental impact, providing decent working
conditions and encouraging diversity -- research firms like MSCI
provide basic screening services and lists of acceptable
This research is also behind MSCI's line of socially
screened indices. One is the basis for the iShares MSCI USA ESG
Select index exchange-traded fund. The fund, which
charges 50 cents per $100 invested, is filled with 168
mid-to-large cap companies that pass MSCI's screens in
categories like environmental impact and corporate ethics.
International Business Machines Corp, Starbucks Corp
and Eaton Corp make up the fund's top holdings,
with about 10 percent of assets among them.
For those who look for active management, Domini and Pax
World are two prominent socially responsible fund families.
Domini, which manages $1 billion in total assets, tends to
follow the sector weightings of a broad index like the Russell
1000 while making socially screened picks in each sector and
subsector, said Tessie Petion, vice president of research at the
In practice, that means that the firm will substitute a
company like Toronto Dominion Bank for those that won't
pass its screens because of business practices, like Bank of
America Corp -- a company excluded because of what
Domini calls the "predatory lending" practices of its
Countrywide line. Financial metrics still matter. Toronto
Dominion bank trades at 13 times earnings and offers a 3.5
percent dividend yield, compared with Bank of America, which
lost money last year and yields just 0.5 percent.
Pax World takes a more top-down approach to its portfolio
construction. The firm, which has $2.7 billion in assets under
management, looks for companies that fit within its broad
investment themes, said Chris Brown, the chief investment
officer for the firm.
Deere & Co is currently Brown's largest holding. He
likes the company not only because it fits within his broad bet
on the strength of the agriculture sector, but because it ranks
the highest among its peers on metrics like human rights and
environmental policies. Pentair Inc is another pick. The
company, which produces energy-efficient water pumps, will
benefit as utilities rebuild or refurbish their infrastructure,
Other investors want a more specific niche. Amana Funds, a
line of funds screened according to Islamic principles, are
among the most popular religious funds. The funds will not hold
any company involved with alcohol, tobacco, pornography,
gambling or pork processing, or with those companies that have
high levels of debt -- a requirement that sidesteps most of the
financial sector. Together, these rules winnow the possible
number of companies to about 45 percent of the American market.
"Beyond these rules, we're basic value fund managers," said
Nicholas Kaiser, the portfolio manager of the $2.2 billion Amana
Trust Growth fund and the $1.4 billion Amana Trust
Technology firms with large cash positions make up some of
Kaiser's largest holdings. Apple Inc, Google Inc
, and Qualcomm Inc make up some of the top
holdings of his growth fund. Each has a reasonable price to
earnings ratio, he said, which means that he's comfortable
holding each company for the long-term.
"You (don't) hear me wanting to own Facebook. We tend to buy
only the low-risk ones. With Apple, if you take out the cash,
the P/E is about 8 and you've got a growth rate of 100 percent.
I don't find that speculative or overpriced," he said.
Kaiser's Growth fund, which returned an annualized 8 percent
over the last 10 years compared with a 3.6 return for the
Standard & Poor's 500, suggests that socially screened
strategies can work over the long-run. He estimates that only
about 10 percent of his investors are Muslim; the rest, he said,
are simply attracted to past performance.
Socially minded fund investors don't have to sacrifice
GuideStone Funds, a line of Christian-based mutual funds,
received the 2012 Lipper Award Wednesday for best overall small
fund group. Its GuideStone Funds Extended Duration Bond fund
, for instance, has returned 18.4 percent over the last
year, and an annualized 10.1 percent over the last five years,
according to data from Morningstar.
Other funds have posted returns that outperformed their
peers. The Virtus Small-Cap Sustainable Growth fund,,
for instance, has returned 17.7 percent over the last year,
compared with a 2.1 percent gain for the S&P 500. The Touchstone
Premium Yield Fund, another socially screened fund,
outperformed its large value peers by returning 12.8 percent
over the last year.