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Let your conscience
be your guide
By James
H. Lowell III • Bankrate.com
You're hip. Happening. Know it all. Been there, done
that. You're down with the people and down on big business. But,
suddenly you find you're making real money instead of daily bread.
You like the way that feels. It's OK. Greed isn't good -- it's grrrrrrreat!
But there's a voice inside your head that keeps telling you that
if you don't watch out, you'll be buying a gas-guzzling, cherry
Range Rover with a faded bumper sticker that says, "Die Yuppie Scum!"
Relax. You can still make money and have a conscience
by owning socially responsible funds. These funds can be a great
way to invest your money in companies that aren't capitalizing on
child labor on Kuala Lumpur, or deforesting the planet to make better
soap.
But while investing in socially responsible funds
may be nothing more than a performance placebo for your post-capitalist
mind, some funds can and do help you profit without making you feeling
like you've just shaved your underarms. There's even a subset of
socially responsible funds, often referred to as faith-based funds,
aimed at religious investors. The Noah fund (NOAHX),
for example, is designed to appeal to evangelical Christians, so
it doesn't invest in companies involved in abortion services or
pornography.
In fact, the following portfolio will help you answer
the primary ethical investing question for yourself: Can you do
well by doing good? Yes, you can.
If you're afflicted with the view that money is the
root of all evil -- despite the obvious fact that it would be hard
to build a church or animal shelter without it -- this portfolio
is for you. These funds will give you a well-diversified portfolio
in terms of asset classes (stocks, bond, and cash), industries,
investment styles, and market capitalizations (the size of companies
in which the fund invests).
A socially responsible portfolio of mutual funds would
invest:
- 25 percent in Ariel Appreciation (CAAPX)
- 25 percent in Bridgeway Social Responsibility
(BRSRX)
- 25 percent in Domini Social Equity (DSEFX)
- 15 percent in Pax World (PAXWX)
- 10 percent in Citizens Income (WAIMX)
The portfolio is a solid blend of mid- and large-cap
value stocks and large-cap growth stocks, with a twist of bonds.
Cash is at 10%, giving the portfolio some defense and potential
offense (if the fund managers see opportunity rather than chaos
in the markets, for example).
The benchmark for socially responsible funds is the
Domini Social Index 400, named after its inventor, Amy Domini. Her
name sits on the masthead of arguably one of the best socially responsible
funds available, the Domini Social Equity fund. The index tracks
the performance of 400 companies that successfully pass a slew of
litmus tests (for example, socially responsible funds tend to avoid
companies involved in "sin" industries such as tobacco, alcohol
and gambling).
A few months ago, we profiled the Domini Social Equity
fund in "Going
Green Without Losing Green." Now, we'll give you the lowdown
on the other gems in the socially responsible portfolio.
Ariel Appreciation
Manager Eric McKissack focuses his attention on financials
and industrial cyclicals (in a good way), as well as on service
companies. The fund preaches the virtues of everything but technology
(he doesn't own any tech stocks), which might lead some to ponder
if McKissack's real name isn't Kaczynski. Yet the fund has done
remarkably well despite the fact that it hasn't been plugged into
tech, a feat that can be attributed to McKissack's stock-picking
prowess.
Bridgeway Social Responsibility
John Montgomery, the fund's portfolio manager runs
a tight portfolio of fewer than 50 issues that's heavily concentrated
in the health care, retail, and technology industries. The fund is
also a good growth play; the average holding has a relatively high
P/E of 27.9.
Citizens Income
Citizens Income is a diversified bond fund led by
Gail Seneca -- not that debt is a good thing. I like it for its
defense against the current wobbly stock market. Seneca invests
at least 65 percent of the fund's assets in investment-grade securities;
the remainder can be invested in bonds that are below investment
grade, and therefore considered speculative (read: junk bonds).
Pax World
This fund offers a mix of stocks and bonds (as a balanced
fund, at least 25 percent of the fund's assets are always invested
in fixed-income securities or cash). Co-managers Christopher H.
Brown and Robert P. Colin favor agencies that offer loans to home
buyers and students -- such as Fannie Mae (Federal National Mortgage
Association) and Sallie Mae (Student Loan Marketing Association)
-- and companies that build affordable housing for low- and moderate-income
individuals.
Two caveats before you emptor.
First, don't think that just because a fund claims
it's doing good means that it will do well.
Second, mutual funds can pose a challenge to an ethically
inclined investor, since funds often hold shares in hundreds of
companies. Getting to know each holding well is not in the cards,
especially given how quickly many funds buy and sell their positions.
One partial solution is to check out the industry weightings in
the fund's current portfolio. This can give you an essential clue
to the fund's overall ethical intent. For example, most companies
in the following industries might be damned by the typical ethical
investor: agriculture, biotech, chemicals, defense/aerospace, and
energy. Those things tend to blow up, ruin wildlife, or create mutant
species anyway. This portfolio is designed to avoid blowups, and
ensure that if you want to, you can truly have a green thumb when
it comes to investing.
If you're interested in learning more about how to
be good and still make money, you can check out a few useful ethical
resources (for a list of books about socially responsible investing,
read "The
Writing on the Wall." My favorite, the Financial Planning
Handbook for Responsible Investors, published by Co-op
America costs $5 (however, it's free for members of Co-op America,
and you can get a free membership to the organization by sending
them clips of media stories about them, such as this one -- print
it out, man).
-- Posted: May 8, 2000
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