Traditionalists say social concerns have no place in investing decisions, that you should look for the best return you can get, period. But can you follow your conscience and make a buck at the same time?
Yes. And more and more investors are doing so, largely because of the growing antagonism toward tobacco companies.
The number of funds that screen investments according to social criteria jumped from 55 in 1995 to 144 today, according to the Social Investment Forum, an advocacy group for socially conscious investing. Assets in such funds soared during that period from $12 billion to $96 billion, the forum says in a new study of social-investing trends.
Some of these funds use screening to avoid investment in certain stocks, while others use the voting power they get from stock ownership to pressure companies to change.
Tobacco companies are the most widely banned stocks in socially screened portfolios - prohibited in 84 percent. Next come stocks in gaming companies such as casinos, screened from 72 percent of the portfolios; weapons companies, 69 percent; alcohol, 68 percent; and birth control and/or abortion, 50 percent.
Mutual fund investors need not give up a lot of return to follow their principles. Indeed, during the last 12 months, one of the best-known social funds, the Domini Social Equity Fund, had a total return of 29.38 percent, according to Morningstar Inc. That compares with 29.7 percent for Vanguard Group’s S&P; 500 index fund, a comparable fund that does not use social screens.
The top performer this year among the social funds tracked by Morningstar is the Parnassus Fund, up 45.5 percent. Like many high fliers, it’s also had some awful years. It ended 1995 with only a .62 percent gain, while most funds were soaring.Conclusion: Except for their use of social screens, socially responsible funds are just like other funds. They can serve their shareholders well or poorly. Investors need to ask the same tough questions about investment philosophy and management skills as they do of any fund.
MEMO: For information on social investing and a list of social funds, write the Social Investment Forum at 1612 K Street NW, Suite 600, Washington, D.C. 20006. Or phone: 202-872-5319. The forum’s Internet site is at: www.socialinvest.org
sponsored Jargon is confusing, by definition. And the financial world has its own set of cryptic words.