I used to think that socially responsible investing (SRI) was basically the politicization of investing. Our society has become so politicized these days, I have heard people politicize food; when, in truth, we should be striving to maintain a civil society, where different views are tolerated — so long as those views don't hurt others. I mean, I never really got why anyone should invest for any other reason than the return the investment would bring. For example, remove Philip Morris from the S&P 500, says Jeremy Siegel in his book, The Future For Investors, and the S&P's return plummets. (Seigel says the S&P returned nearly 11 percent from 1957 to 2003 — without Philip Morris — now Altria — the return in that period is about 5 percent less.)
But I have come around — and so have many, many others. About $1 of every $9 invested today is being directed toward SRI-type investments, according to the Social Investment Forum. That amounts to about $2 trillion. Meanwhile, 93 percent of investors surveyed by the research group say their financial advisors should investigate the ethics of an investment as well as the financials.
Why would you want to invest in an unethical company? But what is your definition of unethical? There is literally something for everyone, from vice funds to religious funds. Yet, when clients request socially responsible portfolios, advisors face many challenges. For starters, there simply aren't many choices in some of the investing style categories or “boxes.” Of the 96 social funds tracked by Morningstar, only one belongs to the small value category, and four are in small growth. Those investors seeking foreign exposure must select from among four foreign large-blend picks; there are no foreign-growth or small-cap choices available. To be sure, the roster of domestic large blend and large growth includes a number of strong picks. But commission-based advisors must shop carefully, because only a total of 25 social funds come with front-end loads.
For practical purposes, the number of selections may be even smaller than those numbers suggest. Suppose your client is a religious Catholic who wants to avoid companies that have links to abortion clinics or contraceptive products. There are large-blend, so-called Christian portfolios that fit the bill. But, of course, there are plenty of other socially responsible funds that seek to invest in businesses that support abortions as part of programs to promote women's health.
Faced with these limitations, some investors may decide to get into socially responsible investing gradually, starting with one social fund. Eventually, if they like, the clients can shift to holding entire portfolios of social funds. Please turn to page 60 for a list of some top SRI choices. Investors who pick one of these stellar funds needn't feel that they are sacrificing quality in order to satisfy social priorities.
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