The objectives of socially responsible investors are pretty diverse--while some folks build an investment strategy on religious beliefs, others incorporate environmental values into their moneymaking code. There are 64 socially responsible mutual funds now available. While each offers a unique mission, they still have one thing in common: an image of poor performance. But that's not necessarily so.
Following Her Heart
Jody Rosenberg always assumed that she wouldn't make much money with socially responsible mutual funds. Even so, activism has been a guiding principle in her daily life. In college, she participated in an anti-apartheid movement. After law school, she ultimately became a state environmental lawyer, prosecuting industrial polluters. And in 1999, Rosenberg and her husband spent time in Bolivia to help the farmers in that cash-strapped country.
All along, Rosenberg has felt uncomfortable about investing in a mainstream mutual fund portfolio that might hold the stocks of tobacco, defense, and environmentally unfriendly companies. In 1992, her conscience won out. When Rosenberg quit a corporate law job, she took the $2,268 she had in retirement savings and plunked it into two so-called "social funds" that have since become part of the successful Citizens Funds' family.
Mutual funds are managed by an investment adviser who uses securities to create a diversified portfolio, which is owned by investors. The ultimate goal of nearly every mutual fund is simply to make money for shareholders. Social funds, however, add an extra step to the process by integrating ethical concerns with investment objectives. This approach sends an important message to companies, letting them know that investors are willing to allocate--or withhold--their dollars in accordance with personal objectives.
The "socially responsible" or "socially conscious" label is very loose. First appearing on the financial scene in the 1970s, some of the earliest social funds focused on religious issues, avoiding the traditional "sin" sectors such as tobacco, alcohol, and gaming. Today, a slew of funds now look for companies that have good track records in labor relations, workplace diversity, the environment, and community relations.
With so many social funds to choose from, there's certainly something for everyone. For example, the Women's Equity Fund buys the stocks of women-friendly companies. The Lutheran Brotherhood has a seven-fund family that follows the religious goals of the Lutheran faith, while the Amana Funds pursue Islamic principles. The Timothy Plan and the Noah Fund highlight conservative Christian values. And Catholic Values Investment Trust invests in companies with practices and products that are consistent with the core teachings of the Roman Catholic Church. On the other hand, the Pride Fund from Meyers focuses on companies with progressive policies toward gays and lesbians. As you can see, there are many choices for the individual investor.
Of course, social investing also has its naysayers. Daniel Wiener, who edits The Independent Adviser for Vanguard Investors' newsletters, argues that investors are better off making money with mutual funds that invest in the broader market for a chance at higher returns, then using the proceeds to benefit favorite causes. "There's absolutely no evidence that social investing leads to real social change," he says.
Kelly Ford, a Michigan schoolteacher and a shareholder in the Domini Social Equity Fund, disagrees, citing as an example the 1980s investor boycotts of companies doing business in South Africa. By refusing to invest in such stocks, individual investors and large pension funds helped bring down the apartheid regime. Today, Ford's top investing priority is finding companies with good track records in environmental and labor issues. "Social investing is consistent with what I am trying to achieve in other aspects of my life," the 26-year-old says.
Just how do social funds improve the quality of life? Many take an activist stance. Consider the MMA Praxis fund family, which follows the objectives of the Mennonite faith. It recently wrote to Merrill Lynch and Salomon Smith Barney to inform them that MMA refused to purchase any of the bonds these two leading brokerage firms underwrote for the China Development Bank. Proceeds from this bond offering are being used to build the massive Three Gorges Dam on the Yangtze River in China, a project MMA and many other environmentalists consider to be socially and environmentally disastrous.