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Come on, Have a Heart!

Stock Market News

August 2000

Come on, Have a Heart!

What do companies like Golden West Financial, Cisco Systems, Bristol-Myers Squibb Co., the Gap and Procter & Gamble have in common?

If you guessed all these companies use computers, try again. Want to try the fact they are all publicly owned companies? You can, but you would be wrong.

The one thing they do have in common is they are all listed on The GreenMoney On-Line Guide, GreenMoney Public Company Web. That is, they are all listed as companies whose stocks are of interest to Socially Responsible Investors(www.greenmoney.com/gmg/wpubco.htm).

Well, you may be tempted to say something like, “Big Deal! Microsoft is there, too, and everyone knows Windows 98 is evil.”

While, at times, we may agree with you on that issue, nobody's percect and none of the companies on the list are perfect. However, they do have something about them that make them attractive to people who invest for more than just bucks. Women and other minorities control some, some provide financing to help people buy homes, some have taken a lead improving conditions in the inner city, but all have done something to enhance the lives of those around them.

What is even more impressive, is that some of these “socially responsible companies”, and the investors and funds that invest in them, have managed to rise to the top of their industry, while contributing to society apart from their primary mission.

So what’s the cost of all of this to the “socially responsible” companies and their investors? When we first conceived of this article, we expected to find that only people who already had a lot of money were involved in “socially responsible” investments. After all, they were the ones who could afford to lose money, or make a lot less money than the rest of us normal investors. However, what we found was these investments aren't slouches.

First, let’s define what a "socially responsible" fund is? A “socially responsible” fund is one that either invests in companies that meet certain criteria the investors consider desirable or that does not invest in companies that meet certain criteria the investors consider undesirable. This may mean the fund’s focus is to invest in companies with a good environmental record or companies that are minority controlled. One of the favorite targets to shun right now are companies that are involved in the tobacco industry. Conversely, companies that promote health, environmental responsibility or are minority owned or controlled may be considered desirable by the “socially responsible” fund.

According to the Social Investment Forum, there were 175 of these funds at the end of 1999, with a total of over $2 Trillion of invested capital and they are beginning to make their mark on corporate America. This compares to 55 funds with $12 billion invested in 1995.

Because of their explosive growth, “socially responsible funds” are becoming major shareholders in some of America's largest corporations. This, in turn, gives them the clout to influence corporate policy and insure the concerns of the investor, both economic and social, continue to be a focus of the companies the funds own.

So with all this great stuff we are telling you, you are probably wondering what the hitch is. The answer is there really isn’t much of a hitch, if you are inclined to support companies that support the ideals you have. Even if you don’t invest with social concerns in mind, there still is not much of a hitch.

Based on the 5 years ended June 30, 2000, the top-yielding "socially responsible" fund produced an annual average return of 41.94% (Bridgeway Aggressive Growth Fund) according to Morningstar. The top-yielding fund not among those considered to be "socially responsible" produced an annual average return of 58.31% (Firsthand Technology Value) according to Morningstar.. That's a pretty big spread between the two, don't you think?

What would you say if I told you that, including Firsthand Technology Value Fund, there were only 12 of the thousands of funds that beat the performance of Bridgeway. Put in perspective, this particular "socially responsible" fund didn't do badly compared to its peers. Even better for the "socially responsible" funds, The Green Century Balanced Fund ranked 1 out of the 448 balanced funds for 1999, according to GoodMoney. It kept this ranking at June 30, 2000.

So, you can see that "socially responsible" funds, while they may earn less than their rivals, have done very well against those rivals and, in many instances exceeded the performance of the other funds. From a return perspective, they are like other funds – some good, some bad. How can "socially responsible" funds compete with the funds that don't invest solely in "socially responsible" corporations?

An advocate of “socially responsible” funds may tell you that being a good corporate citizen is good business. By screening out tobacco companies and companies with poor environmental records, these funds have avoided companies that, to say the least, have potentially huge liabilities to cope with. Those negative outside factors put downward pressure on the stock price.

Further, you need to take a look at why some of these companies are on the list. Some meet investor criteria because of minority ownership, while some are meticulous about the ethical behavior of their employees. Some have records of supporting minority- and women-owned firms, while some have a high degree of community involvement. Some are family friendly and some are environmentally friendly. The utility companies on the list , for example, either have no investment in or are steering away from nuclear facilities.

So, how do you know if a “socially responsible” ffund is for you? You do the same thing you would do with any other investment. First, you take stock of what you have and where your are. Then, you decide where you want to be and the best route to get there, except that when you look at the funds which interest you, you look into your heart also. What do you want to support? What kind of company do you wish to be associated with? How do the funds you propose to deal with meet your criteria? We can help you evaluate where you are in relation to your other goals, but we can't decide for you if you are happy with that Chevron stock you got from great aunt Tilde 29 years ago. That's a call only you can make.

By the way, Chevron is on the list.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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