"Of Mutual Interest"-Socially Responsible Investing
Tuesday, June 19, 2007SUSIE GHARIB: For most investors, their financial goal is simply to make as much money as quickly as possible. But for a growing number of people, there's another guiding principle: social values. As Erika Miller reports in tonight's "Of Mutual Interest", socially responsible investing has become a major force in the mutual fund industry.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Rima Vesely- Flad is passionate about protecting the environment and supporting human rights. So when the time came to save for retirement, she put her money where her heart is-- in a socially responsible mutual fund. She's one of a growing number of investors seeking to balance profits with values.
RIMA VESELY-FLAD, SOCIALLY CONSCIOUS INVESTOR: I do know that I'm not heavy in my heart in terms of how I've invested money. So, I do have a sense that it perhaps is contributing to something good, or at least is not doing harm.
MILLER: Although socially conscious mutual funds have been around since the 1970s, they've increased in popularity in recent years. There are now 119 U.S. mutual funds with a social focus, up from 54 a decade ago. Over $48 billion is currently invested in the group domestically, a more than six-fold increase in that time frame. Calvert is the nation's largest family of socially responsible funds. Bennett Freeman is its head of social research and policy and says making the right investment choices can pay off.
BENNETT FREEMAN, HEAD OF SOCIAL RESEARCH, CALVERT FUNDS: We believe that companies that are committing to the right standards, the right principles, the right policies and whose performance begins to match those commitments, are companies that will be the best investment bets for the future.
MILLER: Most socially responsible funds steer clear of companies involved in tobacco, alcohol and gambling. Many also screen for additional criteria, like avoiding companies that do business in Sudan, manufacture weapons or have poor environmental records. Some of the funds are highly specialized. For example, the Ave Maria funds follow Catholic tenets, the Amana funds invest according Islamic principles. The women's equity fund promotes female empowerment. According to Morningstar, there's no reliable evidence that socially responsible funds do better or worse than other funds over the long term. But mutual fund analyst David Kathman says there can be differences short term.
DAVID KATHMAN, MUTUAL FUND ANALYST, MORNINGSTAR: In many cases, socially responsible funds would have more growth-oriented stocks, especially technology stocks, because those pass the screens more easily. They tend not to have environmental issues. They tend to treat their employees well.
MILLER: Kathman also points out that socially responsible funds tend to have higher expense ratios, because of extra research costs. Socially responsible investing is not limited to passive screening. It also involves shareholder advocacy. Calvert and other fund families use shareholder resolutions, proxy votes and other strategies to encourage companies to change.
FREEMAN: Today, we're very involved in the Sudan divestment campaign for example. We're active in promoting labor and human rights around the world. We're very focused on environmental advocacy.
MILLER: Socially responsible investing isn't for everyone. Some investors may even find themselves more aligned with the vice funds, which invests only in alcohol, tobacco, gaming and defense companies. Portfolio manager Charles Norton says the fund is not making moral judgments, just focusing on industries with strong fundamentals.
CHARLES NORTON, PORTFOLIO MANAGER, THE VICE FUND: These sectors are steady performers. They're highly profitable. And they're not as tied to U.S. economic cycles. So if you're looking for a defensive strategy, it makes sense to take a look at these sectors.
MILLER: The four-year-old fund gets Morningstar's top five-star rating. It returned 23 percent last year and 18 percent annualized the past three years, beating the S&P 500 benchmark for both. But for investors like Rima Vesely-Flad, it's not just about the returns. It's about her being able to sleep at night.
RIMA VESELY-FLAD: We live in an extraordinarily wealthy country and the way that we spend our resources here reverberates everywhere around the world and that it matters. It matters if we care about our world and the people in it.
MILLER: Erika Miller, NIGHTLY BUSINESS REPORT, New York.
