To the Sun We Shall Journey: Best SRI mutual funds

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n the world of investing, conscience, it seems, costs nothing. You can have your do-gooder cake and eat it, too. Consider iShares MSCI USA ESG Select Index (symbol KLD), an exchange-traded fund that tracks an index of companies that it says follow high “environmental, social and governance” standards. Over the past five years, the fund returned an annualized 2.3%, compared with 1.7% for Standard & Poor’s 500-stock index. Calvert Equity Fund (CSIEX), one of the largest and oldest funds in the sphere of socially responsible investing, or SRI, gained 6.9% annualized over the past 15 years, compared with 5.5% for the S&P.

Socially responsible investing has come a long way since I started writing about it nearly 20 years ago. In 1995, there were only 55 mutual funds that engaged in SRI, with $12 billion in assets. Now there are 493, with assets of $569 billion. Socially responsible investors include “cor­porate responsibility and societal concerns” as “valid parts of investment decisions,” according to the Forum for Sustainable and Responsible Investment, a trade group.

there’s the fund that proves you don’t have to sacrifice profits at the altar of morality: Domini Social Equity. Its annual fee of 1.23% keeps it off my recommended list, but you can’t help liking the fund, which was founded by Amy Domini. As a stockbroker in 1980, Domini recognized that her clients wanted to put their money into responsible companies and to avoid bad actors. With Peter Kinder and Steve Lydenberg, she devised an SRI index of 400 stocks and launched a fund to follow it. Over the past 15 years, the fund gained an annualized 5.1%, trailing the S&P by less than half a point per year.

Since 2006, Domini has been actively managed, but you can still buy the index that Amy Domini helped develop through an ETF with yearly expenses of just 0.50%. The five-year return of iShares KLD 400 Social Index (DSI) has lagged the S&P by just 0.2 point per year. So, giving up practically nothing, you can get a warm feeling that your money is serving a useful purpose—even if the fund manager or index composer is deciding what that purpose should be. Not a bad deal.

 

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Ariel Fund – $863.5 million

The Ariel Fund is part of the family of mutual funds managed by Ariel Capital Management based in Chicago, IL. According to the firm the fund invests in companies with market capitalizations primarily under $1.5 billion, with an emphasis on small-cap stocks. Market capitalization is a way to determine the size of a company and is calculated by multiplying a firm’s outstanding shares by the dollar value of a single share. “Small-cap stocks” mean companies whose market capitalization is generally below $2 billion but above $300 million. The Arial Fund’s social criteria includes screens for environmental impact, tobacco, weapons, nuclear energy, and diversity.

Stock symbol:ARGFX

Pax World Balanced Fund – $1.5 billion

Part of the Pax World Mutual Funds family based in Portsmouth, NH. According to the firm, Pax World Balanced invests in companies “that provide goods and services, such as health care, technology, pollution control, housing, utilities, and education, that improve the quality of life.” Pax World Balanced is a “domestic hybrid” fund, meaning it holds a mix of stocks and bonds of U.S. based companies.

Stock symbol:PAXWX

PIMCO Total Return III Institutional – $2.225 billion

PIMCO is one of the largest fixed-income management firms in the world. The PIMCO Total Return III Institutional is a fund for institutional investors such as pension funds. The minimum investment is $5 million. According to the firm the fund invests primarily in corporate bonds, U.S. government securities, and mortgage-related securities. Its investments may not go to issuers who engage in “the operation of gambling casinos, the provision of healthcare services, or the manufacture of alcohol, tobacco products, pharmaceuticals, pornography, or military equipment.”

Stock symbol:PRFAX

Ariel Appreciation invests in “mid-cap” stocks, which are companies with a market capitalization generally between $2 billion and $10 billion. According to the company, Ariel Appreciation limits its investments to firms the size of $200 million to $5 billion. It uses the same screens as the larger Ariel Fund: environmental, tobacco, weapons, nuclear energy, and diversity.

Stock symbol:CAAPX

Parnassus Equity Income – $1.3 billion

Parnassus Equity Income is a member of the Parnassus Funds family based in San Francisco. As an equity income fund it tries to grow through price appreciation, but also by investing largely in dividend paying stocks. According to the firm, the fund can invest up to 10 percent of its assets in community development loan funds. It may not invest in companies “that produce alcohol, tobacco, weapons, or nuclear energy.”

Stock symbol:PRBLX

 

 

Sources at

http://www.kiplinger.com

http://socialinvesting.about.com/

 

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