Let's focus on how the leader among classic SRIs, the Domini Social Index Fund, will fare under the Bush administration. Domini is the
classic SRI. Domini has a great track record for doing well by doing good--until recently. Following five consecutive years of strong double-digit growth (never growing by less than 21% since 1995), Domini dropped 15% in 2000, plunging hard in the last quarter.
Domini and peers like Green Century, Pax, the Calvert Funds, and Dreyfus Third Century, to name a few, apply negative screens. They avoid investing in companies like defense contractors, nuclear power companies, tobacco firms, or gambling casinos. And those very screens may mean these types of funds will not share in the profits created by some of the incoming administration's likely spending priorities. For instance:
President Bush wants to increase spending on America's military. Contradictorily, however, Bush is a neo-isolationist who will bring our troops back from the Balkans, ignoring European protests that America's military presence is essential to Kosovo peacekeeping. Although he'd buy more high-tech weaponry and hike military pay, President Bush won't be in a hurry to dispatch American troops overseas for "peacekeeping" operations. On the other hand, if Saddam Hussein threatens the Arabian Peninsula, tune in to CNN immediately, 'cause the rockets will be flying over Baghdad. In any case, funds that shun defense and military industries will not share in the increased government spending--which may be considerable.
Bush, an ex-oilman from an oil-producing state, is the son of an oilman. And Vice President Cheney formerly ran Halliburton, a big energy company. Bush wants the U.S. to develop stronger oil and gas capacity and become more self-sufficient as an energy producer. He supports an Alaskan pipeline, for instance, an idea that Al Gore strongly opposed during the presidential campaign. Here again, funds that filter out old-fashioned energy giants like oil producers will be left out of the party--and may find their investments in alternative-energy ideas temporarily out of favor.
Although Bush didn't make a big thing of it during the election, he backs Second Amendment protections for firearms ownership and would certainly be friendly to loosening restrictions on gun sales. But any increased profits to gun manufacturers will attract new investments, passing most SRIs by.
Besides the profits they stand to lose because of the companies they filter out, SRIs may also see a change in fortune for the companies they do hold. It's easier to avoid investing in industries you don't like than it is to pick truly good companies with universally acknowledged virtues, because people don't agree on what a good company is. Still, SRIs like nonpolluting, socially just companies. The result is a strong preference for high-tech investing. (Thirty-five percent of Domini is concentrated in the hi-tech sector.)
These companies form the bedrock of the broad socially responsible funds' holdings, because these companies don't pollute (not much, anyway) and treat their workers pretty well. And as the high-tech sector has soared and then dived recently, so too have SRIs. That may change under President Bush. Although he isn't especially averse to new-wave companies, he isn't exactly hot on them either.
A hopeful sign: In early January, Bush reached out to leaders of the high-tech industry, thus signaling that he's not going to consign them to Cyber-Siberia. He may not have invented the Internet, but he doesn't want to ignore it either.
If you're wondering where the good news is for socially conscious investors under President Bush, one group of funds should gain--or at least be hurt less--under the new administration. Some funds select stocks based on religious tenets regarding lifestyles. Conservative investors, like the Timothy Plan, the Shepherd Values Fund, and others, shun companies involved in family planning, abortions, or disseminating licentiousness.
The Timothy Plan is less concerned about ecological matters than about classic moral values. This puts these funds well in tune with the incoming administration.
Bush avoided declaring irrevocably that he'd try to outlaw abortion if elected, or that he would actively undercut family planning. He supports a constitutional amendment that would permit abortions only when rape, incest, or a mother's survival is at stake. However, many pundits think he's only trying to placate the religious right but won't do anything more than make speeches and rail against the immorality of killing babies. Still, under President Bush, a ban of RU-486 is more likely, even though the president's executive powers don't reach inside the nation's health organizations. And he supports a ban against partial-birth abortions, too. Federal judges appointed under Bush would not face a litmus test, he says, but he is likely to favor "strict constructionists" who are averse to abortion procedures. Finally, Bush opposes same-sex marriages.
Conclusion: If you seek a strong return from your SRI, and your views are malleable, sell your Domini and Pax shares short, but pile into the Timothy Fund and Shepherd Funds posthaste.
The good news for classic SRIs is that smart institutional Wall Street money has already discounted the prospects for changes noted here in the Bush administration. Smart money has already backed off high-tech companies and plunged into defense contractors and manufacturers of pipelines going north to Alaska, for example.
So you can choose to ignore everything you've just read and go with this hunch: If you're an investor for the long-term, not the here-and-now, and if you enjoy being a contrarian, oddly, this is a good time to get back into Domini, Pax, etc. Just expect volatility in the short run.