YOUR
MONEY: A WEEKLY GUIDE TO PERSONAL FINANCE Social funds' efforts to invest responsibly get harder
to value
By Jay Hancock, a columnist
for The Baltimore Sun, a Tribune Co. newspaper Published June 5, 2005
As of April 30, the socially
responsible Calvert Large Cap Growth Fund owned stock in
Bristol-Myers Squibb Co., whose life-saving Pravachol pill costs
$1,500 a year and is unaffordable for many who need it; in Black
& Decker Corp., which keeps shutting down U.S. plants and
tossing workers out of jobs; and in Home Depot Inc., whose giant
home-improvement stores have wiped out thousands of family-owned
hardware shops.
And the fund still isn't beating the S&P
500. Plus, the world continues to be full of misery and injustice.
What should the conscientious investor (who plans an early
retirement in Aspen) do?
Doing well by doing good--the
ethical free lunch--always has been an ambitious goal. Lately it
seems especially so for the socially mindful mutual
funds.
Social funds have trouble beating the market. It's
getting harder for investors to distinguish one from another as the
industry grows. And they face new criticism that they aren't doing
much to save the world, anyway.
Examined as a group,
companies owned by socially responsible funds are "virtually no
different than the combined portfolio of conventional mutual funds,"
writes entrepreneur and activist Paul Hawken in a report published
by his Sausalito, Calif.-based Natural Capital Institute last
fall.
What's more, added Hawken, co-founder of the Smith
& Hawken garden-tool catalog, stock-picking screens used by the
social funds "allow practically any publicly held corporation" to be
considered socially responsible. Those include the above-mentioned
Calvert-owned companies as well as Exxon Mobil Corp., Wal-Mart
Stores Inc. and Citigroup Inc., each excoriated for one thing or
another by social activists.
Hawken, who declined to be
interviewed, is reportedly developing an ostensibly better
social-investment screen. But why bother? Every social fund thinks
its investment requirements are superior. His will just be one
more.
The best social-investment strategy, some on the far
left believe, is shunning stocks altogether. If that's not possible,
why be prissy about shades of gray? Finding "pure" socially
responsible companies "is actually impossible in a capitalist
system," Doug Henwood, editor of the Left Business Observer, wrote
in Mother Jones a few years ago.
Social funds argue they can
improve corporate behavior by becoming owners. It's the old "change
the system from within" strategy of moderates and collaborationists
through the ages, which, in a larger sense, is the mission of the
whole social investment movement. It wants to use capital as a force
for good.
But capital was a force for good long before the
social-investment movement appeared. Business-driven productivity
growth almost single-handedly created the developed-nation standard
of living that includes cars, indoor toilets, antibiotics, 75-year
life spans and Superchunk records.
It's hard to argue that
social-investment mutual funds have added much, except good feelings
and fees for investment pros.
Yes, ethically directed capital
has participated in big victories, including recent improvement of
corporate governance. But usually it's deployed along with political
forces, which deserve most of the credit. Nelson Mandela did more to
end apartheid in South Africa than anybody's investment
policy.
And social funds often underperform the market while
charging large management fees and sales commissions.
This
year, through Thursday, the total return for the S&P 500 was off
0.6 percent, while the Calvert Large Cap Growth and the Domini
Social Equity Fund both were down about 2 percent.
Calvert's
biggest fund, the Social Investment Equity Fund, however, was ahead
of the S&P 500. So was the biggest fund placed by Hawken in the
social category, the Ariel Fund. Ariel's largest holding as of March
31 was Caesar's Entertainment Inc., the gambling den.
Is
business always benevolent? No. Should we ignore misbehavior and
give the capitalists free rein? Of course not.
But that's
what government is for. Here's a better way to save the world and
yourself. Invest long term in a few non-social index funds, give to
charity, volunteer and vote for good laws.
- - -
Few
windfalls from doing right thing
Many funds considered to be
socially responsible have struggled to beat the market. Some notable
examples:
>> Save 54% off the newsstand price - Subscribe
to the Chicago Tribune Subscribers, did you know
you can have free access to the last 365 days worth of Chicago
Tribune stories by joining Subscriber
Advantage?
Subscribers, did you know
you can have free access to the last 365 days worth of Chicago
Tribune stories by joining 
