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Home > Finance > Putting Principles In The Principal

Putting Principles In The Principal
The socially responsible increasingly are investing not only for profit but a better world.

By Jane Linker
Jewish Week Correspondent
March 16, 2001

Make no mistake, Bernadette Gaskin wanted to make money when she decided to start an investment plan for her newborn daughter Isabel nearly three years ago.

But the 34-year-old systems analyst wanted that investment to feature companies "that would build a world my daughter could live in."

"We didn't want to put our money into companies that were abusing the environment or making guns," explained Gaskin, of Tacoma Park, Md. "About 10 years ago we'd invested in a socially responsible mutual fund called Calvert, and we decided to do the same thing for our daughter's money."

Gaskin is among a growing number of investors putting their principal where their principles are.

Though socially responsible mutual funds have been around for more than three decades, the last few years have seen tremendous growth, according to the Social Investment Forum, a nonprofit organization in Washington that is to dedicated to promoting and monitoring the socially responsible investment.

According to SIF's 1999 Trends Report, $2.16 trillion is invested in socially responsible companies, up from $1.85 trillion two years earlier.

"One out of every $8 under professional management in the United States is part of a socially responsible portfolio, accounting for 13 percent of the total $16.3 trillion investment assets under management in the United States today," points out Todd Larson of SIF. "That's substantial."

The amount, he adds, is growing explosively - far faster (183 percent) than traditional mutual funds (60 percent) since 1997.

The funds may be good for peace of mind, but are they sound investments?

Absolutely, according to Business Week. The magazine reports that U.S. mutual funds which invest only in companies deemed socially responsible returned an average of 14.47 percent a year over the last three years (ending July 31, 2000), compared to 13.51 percent for funds without such distinctions.

In a survey that appeared in Pensions & Investments magazine, the growth of socially screened portfolios was shown to significantly outpace the broad market. Between Jan. 1, 1995 and Jan. 1, 1997, total assets under management in screened portfolios for socially aware investors rose 227 percent, from $162 billion to $529 billion. Over the same period, institutional tax-exempt assets under management in the U.S. grew by 84 percent.

Funds that describe themselves as socially responsible "screen" for a variety of issues, refusing to invest in companies found to be involved either in manufacturing or selling questionable products such as guns, or that have unacceptable social or labor policies, like violations of human rights.

Tobacco is now the common denominator for virtually every social investment fund. According to 1997 Social Investment Forum figures, more than 97 percent of managers running screened portfolios and 84 percent of all socially screened assets avoid investing in tobacco companies. Other screens include gambling (72 percent), weapons (69 percent), alcohol (68 percent), birth control/abortion (50 percent), environment (37 percent), labor (25 percent), human rights (23 percent) and animal welfare (7 percent).

Today there are more than 200 mutual funds that bill themselves as socially responsible; in 1985 there were four. By 1995 there were 55, and just two years later 144.

Consumers now have an array of choices, from all-equity to all-bond funds, or growth to international funds, from small cap to index funds. Most of the major investment firms - like Fidelity, Vanguard, Smith Barney and Dreyfus - feature funds they classify as socially responsible. These funds not only bring in business, the firms have found, but do well for them.

For example, Dreyfus offers the Premier Third Century Fund, started in 1972, which makes it one of the oldest. Valued at $1.1 billion, last year it was down 12.9 percent. But John Whaley of Dreyfus quickly notes, "that was a bad year for everyone." He points out the fund's five- and 10-year records: up annually 18.97 percent and 16.02 percent.

So how to pick the fund that's right for you?

You do what Gaskin did - research.

"We checked out the Social Investment Forum Web site and looked at the list of funds," she said, explaining that the site listed information on founding date, assets, year-to-date performance and annual average since inception. Another listing showed what each fund screened for.

"The ones we were interested in, we called and wrote for a prospectus and then we studied. We chose the Ariel Fund for Isabel because we liked their performance," Gaskin said. "We wanted to invest in good companies, but we also wanted to make money."

Ramy Shaalan, a fund analyst with Wiesenberg, Thomson Financial who tracks socially responsible fund performance, notes that his firm created a fund average that looks at 185 socially responsible funds.

"That's a good way to track how the overall area is doing," he said. "But socially responsible investing is really a style of investing in the same sense that mid-caps or sector funds would be. Once you find a fund you're interested in, check its performance against others in the same category. That will give you a good indication."

Shaalan points out that fund managers are seeking companies that are well managed, and socially responsible screens tend to look at criteria that make them even better.

"For example, union/management relations and shareholders lawsuits are two frequent criteria socially responsible funds use, and they're also, of course, usually good predictors of how well a company is doing," he says.

Women are finding socially conscious funds more attractive than men. Women account for just 48 percent of mutual fund shareholders but comprise about 60 percent of socially conscious investors, according to the Social Investment Forum. Furthermore, while men make up an estimated 90 percent of the leadership of mutual funds, women dominate the top positions at many socially responsible funds.

"Women don't separate how they feel about certain issues from what they want to do with their money," said Barbara Krumsiek, chief executive of the Calvert Group, a socially responsible fund family with more than a dozen investment options worth well over a billion dollars, in a recent Business Week interview.

The Gaskins are quite pleased with how the Ariel Fund has done for Isabel. They add that some of their friends are beginning to ask questions about how they join the growing number of socially responsible investors.

"We feel really good about what we're doing," said Gaskin. "Ariel had a bit of down period last year, but it's back up a bit now. Anyway, we're in this for the long term and we know that, even in a small way, we're investing our principles."

To find out more about socially conscious investing, log onto the Social Investment Forum Web site at Also, a good guide to read is the Financial Planning Handbook (Co-op America, $5.95); call (800) 58 GREEN.


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