Investing according to your conscience can be a tricky business, especially in a difficult market.
First of all, you have to find an investment that matches your ethical criteria. Second, you want that vehicle to be one that will increase in value.
A multitude of mutual funds now invest according to what they consider to be socially responsible considerations. Recent additions are TIAA-CREF Social Choice Equity Fund (TCSCX) and Vanguard Calvert Social Index Fund (VCSIX).
Some socially responsible funds avoid stock of companies involved in alcohol, tobacco, weapons, gambling or pollution of the environment. Others focus on enlightened corporate policies, the workplace or quality of products. Still others center on religion or ideals.
The past year and a half has been grueling for many socially responsible funds that invested heavily in technology firms because of their futuristic goals and positive employee programs.
“The funds have lost assets, but that’s due to the market downturn and not from people leaving them, since social investors are less prone to panic and more long-term in orientation,” related Steve Schueth, director of the Social Investment Forum (ww.socialinvest.org) in Boulder, Colo. Apartheid in South Africa was once a primary concern of such funds, Schueth pointed out, but a more recent emphasis is raising the public awareness of companies using sweatshops to manufacture merchandise.
Not all socially responsible funds were high on technology. The two top-performing funds over the past 12 months are run by Ariel Capital Management, which uses a value approach to investing. It also has ideals.
“We have to be socially responsible ourselves and then encourage companies we invest in to be socially responsible organizations,” explained John Rogers Jr., founder and chief executive of Chicago-based Ariel. “We expect a commitment to community, diversity and the environment, and want to know how companies are living up to the government rules.”
Ariel’s own commitment included starting a small public school in Chicago, Ariel Community Academy, which features a savings and investment program for its students. Meanwhile, Rogers favors the stock of ServiceMaster Co. (SVM), which has strong religious beliefs and community commitment, and Rouse Co. (RSE), which builds not only malls but housing for all sorts of people that fits the historical context of each area.
The best-performing mutual funds under the “socially responsible” umbrella over the past 12 months as tracked by Morningstar have been:
– Ariel Appreciation Fund (CAAPX), Chicago; $652 million in assets; “no load” (no sales charge); $1,000 minimum initial investment; 800-292-7435; up 27.08 percent.
– Ariel Fund (ARGFX), Chicago; $402 million; no load; $1,000 minimum; 800-292-7435; up 25.74 percent.
– Parnassus Income Fixed (PRFIX), San Francisco; $11.2 million; no load; $2,000 minimum; 800-999-3505; up 12.23 percent.
– Aquinas Fixed-Income (AQFIX), Dallas; $46 million; no load; $500 minimum; 800-423-6369; up 10.72 percent.
The pro-active Aquinas family of funds stresses its own set of Catholic principles by investing in companies and trying to change them if their ideals don’t match its criteria. For example, it urged General Electric to put more women in top jobs and Whirlpool to stop making donations to Planned Parenthood.
The oldest socially responsible fund group, Pax World in Portsmouth, N.H., was started in 1971 by two Methodist ministers and initially screened out weapons makers during the Vietnam War. That broadened to fair employment practices, environment, tobacco, liquor and gambling.
“I’d advise anyone picking a socially responsible fund to read the prospectus carefully and see exactly what the screens are, since funds have very different objectives,” said Christopher Brown, portfolio manager of the Pax World Balanced Fund. “Every year issues pop to the forefront, with sweatshops and labor issues the big things right now.”
The three largest socially responsible funds over the past 12 months have shown the effects of a difficult market:
– Domini Social Equity (DSEFX), New York; $1.28 billion in assets; no load; $1,000 minimum; 800-762-6814; down 26.03 percent.
– Pax World Balanced (PAXWX), Portsmouth, N.H., $1.17 billion; no load; $250 minimum; 800-767-1729; down 11.47 percent.
– Dreyfus Premier Third Century “Z” (DRTHX), Uniondale, N.Y.; $870 million; no load; $1,000 minimum; 800-373-9387; down 37.81 percent.
