RSS
Home
Earth Day investing
Print
Email
RSS
Subscribe
Socially responsible investing (SRI) is growing. According to the non-profit industry trade group Social Investment Forum, about 11% of managed assets in the United States are in SRI investments and the amount grew by 18% in 2007. All investment assets grew only by 3% in 2007.
Socially responsible investing is just what the title suggests -- purchasing stocks or bonds of companies that are not involved in certain activities (tobacco or firearm sales, for example) or are involved in environmental industries, or have strong environmental and management records. The idea behind investing in these types of companies is that they will be good investments and good for the planet in the long run. SRI is not a new idea -- the PAX World Balanced mutual fund (symbol PAXWX) is almost 40 years old.
As an investor, the challenge has been to build an effective and efficient SRI portfolio. In the past, there weren't that many SRI mutual funds to choose from so an investor either had to choose from a limited number of SRI mutual funds or try to choose individual SRI companies. That's changed.
According to the Social Investment Forum, there are now over 260 socially and environmentally screened mutual funds so the task of building a diversified SRI portfolio is getting easier. As always, a well-diversified portfolio requires assets in large and small company U.S. and non-U.S. stocks and bonds. You can find SRI mutual funds in these categories.
If you're a passive investor, there are ETFs (exchange traded funds) that give an investor access to SRI. Barclays Ishares offers the KLD Select Social ETF (symbol KLD) and Vanguard offers the FTSE Social Index Fund (symbol VGTSX). There are a number of actively managed SRI funds from PAX World Funds, Calvert Investments, Parnassus Investments and other mutual fund families. A website dedicated to SRI is SocialFunds.com where you can find a list of SRI funds. One word of caution about actively managed SRI mutual funds -- they tend to have relatively high expense ratios. For example, the Calvert Social Balanced Class A Fund (symbol CSIFX) has an expense ratio of 1.24% with a 4.75% front end load. Compare those costs to the IShares KLD Select Social ETF expense ratio of .50% with a low brokerage commission if you buy it from one of the discount brokerage firms. (The Calvert fund has other share classes available with different load and expense ratio combinations.)
If you're thinking about directing some of your investments toward SRI, you need to think about what you define as "socially responsible". For example, the most common screens that investors use to eliminate a company are tobacco, alcohol, gambling and the oil and gas industry. Other investors shun defense oriented stocks and some investors eliminate companies who do business in China or have what they judge to be poor labor relations records.
Finally, there is a raging debate about the investment performance of SRI funds. You can probably find a study that confirms whatever bias you have. For example, a 2006 study showed that tobacco stocks have outperformed market averages for decades and demonstrated that this is true even after accounting for market risk, size, and valuation effects. On the other hand, a 2007 study found that stocks of firms on Fortune magazine's '100 Best Companies to Work For' list outperformed market averages, even after accounting for market risk, size, momentum, and style effects. You can read more studies related to socially responsible investing at this site.
SRI is as much a matter of your values as it is about maximizing return. There are a variety of ways to act on your social and environmental values -- recycling, giving to green causes, planting a tree. SRI is another way to put your values to work. So on this Earth Day 2009, you can think, research and read about the growing area of SRI. If nothing else, you owe it to yourself to become familiar with the pros and cons of this fast-growing investment area.
Related Articles:
Add a Comment
