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Grex Finance Item 17: "Socially responsible" investing
Entered by marcvh on Sat Aug 12 17:20:22 UTC 1995:

A while back, there was something of a fad in "socially responsible
investing" or something along those lines.  The concept usually applies
to mutual funds, since normally such funds attempt to achieve investment
objectives but don't spend time concerning themselves with abstract
"make a better world for you and me" type goals that their investors may
have.

I've still seen such funds around, though they don't seem to have taken
off in popularity.  I always thought the idea of such funds seemed
rather limited, mainly by virtue of the fact that lots of different
people have differing ideas about what constitutes "socially
responsible" business practices and companies.  Sure, many people don't
like the idea of investing in tobacco giants, but beyond that things get
less clear.  Some people think MicroSoft and Wal-Mart engage in
anticompetitive practices and don't like the idea of being involved in
that.  Some people may think Starbucks is essentially just a drug dealer
making a buck of an addicted population.  Some people may not want to
invest in companies found to be collaborating and price-fixing.

Advocates of such funds say their changed investment strategy doesn't
produce lower returns, but merely changes the types of opportunities
they seek out.  Naturally, some disagree.

Do you concern yourself with what your investment income is coming from,
and whether it's going to something that gives you warm fuzzies inside?

6 responses total.

#1 of 6 by katie on Sat Aug 12 23:55:35 1995:

NOt I.

#2 of 6 by zook on Sun Aug 13 02:07:54 1995:

I have yet to join the World of Investment, but it seems to me I've
actually heard of funds that are socially-neutral.  Can't say the same for
socially-conscious.  I think they would be hard put to demonstrate
equivalent returns.

#3 of 6 by srw on Sun Aug 13 02:32:21 1995:

Yes and No. I used to like the idea of investing in Mutual funds that
looked for "socially responsible" companies to invest in. My 
experience was that they were bad funds from an investment point of view.
I ditched that strategy. I have some investments in funds which may have
some companies that I don't approve of. I have come to accept that.

On the other hand, I also have invested in the stocks of individual
companies. I would only consider companies whose behavior I felt was
within acceptable limits. I remember bailing out of an investment when
it transformed itself into a tobacco stock. I missed a chance to
make some money there, but I am not sorry.

#4 of 6 by zook on Sun Aug 13 19:23:27 1995:

...Therefore, your return was not as great.  That was your choice, so no
problem and more power to you.  But, I think the question was does
investing in socially responsible mutual funds deliver an equivalent yield
to socially oblivious mutual funds?  I think the answer is probably no. 
So, the next issue is how much money are you willing to forego in order to
be socially responsible?  Hopefully, the difference is not very great... 
 Can anyone comment on the performances of various mutual funds - and
whether they were socially responsible or not?

#5 of 6 by marcvh on Sun Aug 13 21:34:14 1995:

The only one I know of offhand is the Working Assets family of funds
(for which I got a solicitation for some weird reason.)  They don't have a 
long history behind them but seem to have decent performance within their
respective types, though their expenses/loads/etc. seem high.

Glancing through some of the portfolio of funds like, say, Fidelity Magellan,
it doesn't look like that much of well-performing funds' income derives
from holding stocks that most people would consider "irresponsible"
(sure, some Mac lovers might not want to invest in Intel, and some
people dislike General Motors, but...)

It doesn't seem to me, a layman, as though eliminating a few companies
from the portfolio would necessarily have a dramatic effect on returns,
assuming one could get equally good management of either type of fund
(which may not be a plausible assumption.)

#6 of 6 by srw on Tue Aug 15 05:09:40 1995:

Of course, you are basically right. Magellan (for those who don't
realize it) has done extremely well, and this is especially surprising
considering how gigantic it has become (over $50 billion)

They do own some stocks that some might object to
Defense stocks: Boeing, GM class H
Chemical and Plastics: 15 companies, including the well known Dow,
     Union Carbide, PPG industries, Eastman Chemical.
Iron and steel: another 1.8%
Mining: Alcoa and Belden
Forest Products: Champion international, Federal Paper Board, 
     Georgia-Pacific, International Paper, Temple-Inland, and Weyerhaeuser.
Energy (mostly Oil Companies) make up another 1.1%

Of course I do not see all of these as a problem, but some people
might object to many of them. At least they don't own tobacco.

In fact, Magellan has partly done very well because it has become,
to a large degree, a technology-oriented fund. In the 6 months from
Sep 1994 to Mar 1995, the technology sector went from 32.1% to 42.6% 
of the holdings.

Top 10 Magellan stocks:
IBM, Motorola, GM, Oracle, Intel, Columbia Healthcare, FNMA, 
CSX Corp (rails), H-P, and Micron Technology.

(source: Magellan Annual Report - Mar 31, 1995)

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