Reconciling Social Responsibility Investing with Investment Goals

Socially responsible investing (hereinafter referred to with the abbreviation SRI) has been of interest to socially conscious investors for some time. The Calvert, Domini, Ariel, Citizens, Parnassus, MMA, Pax World and Winslow, to mention a few, are mutual fund families that have SRI offerings. The critical questions are how to integrate these funds into an overall portfolio and how does a particular socially conscious client define “social responsibility.”

The definition of social responsibility varies. Common concerns are tobacco, alcohol, drugs, the environment, human rights, weapons manufacture, nuclear power, and animal rights.  Clients may have one or more of these that they focus on. The extent to which they are consumed by the concerns and the priority given them, to the relegating of investment return as secondary or distant concern, will determine whether they are able to meet their financial goals within the chosen timeframe.

Whether clients are willing to push off retirement beyond the normal retirement age simply because the SRI driven investments have not yielded the desired return is a question every SRI client will have to confront.

Fortunately, there are mutual fund choices in bonds, equities, domestic and international, largecap, midcap, and smallcap. Some have beaten their benchmarks, some have not. In addition, Morningstar has rated SRI funds as a separate category. Surprise, surprise, out of 243 SRI funds, only 6 have been given an overall 5 star rating, and of those, only two received the 5 star rating for the 3 year and 5 year periods through March 2007. The conclusion: SRI funds are underperforming their non-SRI brethren even though they may be beating their benchmarks.

We will work with clients to construct a portfolio that is in alienment with their SRI focus provided that they understand the sacrifice they will be making in investment returns and are willing to diversify the portfolio. Ninety percent of a portfolio’s return can be explained by the asset allocation. Clients who are so passionate about a single issue as to foreclose good asset allocation may wish to consider a separate cash donation to their favorite cause, and consider the benefits of more thorough asset allocation strategies.

For more information, call us.