How to invest in foreign firms that do good
Fund companies based overseas are quietly opening their doors to US investors seeking ethical companies.
Some investors, impatient with years of sluggish returns from US stocks, have found they can get a bigger bang for their buck in foreign markets. In addition, those who want their overseas investments to have a social impact are dipping into mutual funds geared toward socially responsible investing (SRI).Skip to next paragraph
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Eight funds fitting that description now have some $4.6 billion under management. Together, they have racked up a healthy 24.2 percent average annualized return for the three-year period ending March 31, according to fund-tracker Morningstar.
That figure is notable in part because the overall performance of all socially responsible funds in the United States has lagged behind that of their unscreened counterparts for the past five years, according to Morningstar data. For investors who demand strong financial returns as well as high ethical standards, this handful of SRI funds offers a ray of hope.
What's more, these funds are becoming more accessible. Five years ago, only four US companies offered SRI funds geared toward foreign equities. But fund companies based overseas are quietly opening their doors to American investors seeking ethical companies.
"If you're based in Europe, you can't distribute your prospectuses in the US unless your funds are registered there," says Mark Campanale, head of SRI business development for Henderson Global Investors, a London-based investment firm. "But if an [American] individual wants to invest in a fund in Europe, they can do so just as long as they were not marketed to. So if an individual sees something on the Internet, rings up and wants to invest in the fund, that's fine."
About 5 of every 6 of the world's 600-plus SRI funds operate overseas. Investors who go with an offshore SRI fund in some ways leave behind the usual focus of US-based SRI funds. The Henderson Industries of the Future Fund, for instance, seeks to invest in child-care providers and builders of affordable housing - two niches that SRI fund companies in the US tend not to emphasize. While most domestic SRI funds operate by screening out problematic industries, this Henderson fund includes only firms in industries deemed to have a positive influence on societies and the planet. With a 67 percent cumulative return since inception in 2002, the fund remains competitive with its American counterparts.
In looking to Europe-based funds, ethical investors uncover a separate universe of opportunity. Europe boasts some 300 SRI funds, versus only about 110 in the US. The European Social Investment Forum provides a list, along with performance statistics, at www.eurosif.org.
Investing directly in foreign funds, however, might not be for everyone. Since these funds can't legally market themselves to Americans, US-based brokers are seldom familiar with them or able to provide informed advice. That means investors need to do their homework, first to find funds that accept investment dollars from Americans (they don't have to) and second to evaluate their merits. In practice, few investors will go that distance, says Doug Wheat, director of SRI World, an information source for ethical investors in Brattleboro, Vt.
"I just don't think people will do it," Mr. Wheat says, noting that convenience is a key driver for most small-scale investors. "I mean, if you can't buy these things on Schwab or some [other brokerage] like that, people just aren't going to do it."