`Social' funds apt to put gains first
They might be called the reluctant do-gooders. Several mutual funds practice ``ethical investing.'' But among these are a few that see their investment policies as good money management first; high principles come in second. Even though such funds have respectable track records, they avoid the ``social investing'' label, since most investors believe a totally unrestricted investment policy pays better.
Not investing in South Africa or not buying alcohol or tobacco stocks does not put great restrictions on these funds, their managers say. It's just that these investments don't make as much sense today as they once did.
Based on the still-sketchy evidence available so far, the executives' reservations seem well founded. While the number of these ``socially conscious'' funds is growing, there has not been a corresponding growth in the number of new investors.
``If there was one more shareholder for each article that's been written, these funds would be doing great,'' Michael Lipper, president of Lipper Analytical Services, says only somewhat facetiously.
``It seems like they could use more shareholders,'' agrees Kathleen M. Victory, editor of Donoghue's Moneyletter, a mutual fund newsletter published in Holliston, Mass. ``If they had more money coming in, they would have more to invest.''
Ms. Victory, however, believes the fortunes of these funds may start to improve. ``We have a certain group of people who are left over from the activist days of the '60s and have now accumulated a fair amount of money and want to do something with it.'' More and more, she says, these people want to make sure their money works for principles they agree with -- or make sure it doesn't help businesses or nations that go against their convictions.
To this end, investors can select from a small but growing list of mutual funds that practice what Amy L. Domini, an investment counselor and co-author of ``Ethical Investing'' (Addison-Wesley Publishing Company, Reading, Mass., $17.95), calls ``avoidance'' or ``positive'' investment approaches. The first involves staying away from investments that do not match your investment concerns; the second means supporting those you like.
A third approach, known as ``activist,'' means investing in companies whose policies you want to change and using your rights of ownership to help make those changes. While this is an option for individual stockholders, mutual funds stick to the first two.
One of the newest of these funds is the Colonial Advanced Strategies Gold Trust, offered by Colonial Investment Services of Boston, at 800-225-2365.
The fund has two notable characteristics. First, it will not invest in South Africa. And second, to offset the restriction of avoiding one of the world's two largest gold producers (the other is the Soviet Union, also not available for investment), the fund invests in an index of securities backed by gold, which links the fund's price more closely to its bullion price.
``We're not making any statement'' about apartheid, says Art MacPherson, a Colonial spokesman. ``But obviously, as long as that policy is in effect, the risks of investing there are too great.'' In other words, the decision not to put money in South Africa is less a moral statement than one of sound investment principles, something all mutual funds are supposed to use.
A similar ``we're not that good'' tone comes from David Tripple, portfolio manager at Pioneer II and Pioneer III, two of the three funds in the Pioneer Group, also in Boston, at 800-225-6292. All three funds avoid alcohol and tobacco stocks. Pioneer II, in particular, has a good, sometimes excellent, record of steady long-term growth.
``Eliminating the cigarette companies, brewers, and distillers has only kept us out of 12 to 15 companies,'' Mr. Tripple says. The funds also do not invest directly in South African-based companies, again, because the risks are seen as too great, not because of a particular ``ethical'' stand.
So why do these funds seem reluctant to put on white hats? For one thing, ethical investing and high returns do not seem to go hand in hand. ``Anytime you restrict investments or eliminate any investments, sooner or later it's going to hurt you,'' Mr. Lipper says. ``But it hasn't hurt them in the short term.''
``There's kind of an unstated acknowledgment that you're not going to get barn-burner returns,'' Ms. Victory adds. ``But if you are an investor that does have strong moral concerns that you feel very strongly about, then you have to make the intitial sacrifice.''
In some cases, this may not be that great a sacrifice. The return on the Calvert Social Investment Fund of Washington, D.C. -- 800-368-2748 -- founded in 1982, was 11.3 percent below the Dow Jones industrial average in 1983, says fund spokeswoman Grace Parker. But in 1984, the fund was up 6.8 percent and in the 12-month period ended May 31, it was up about 30 percent.
Calvert's funds (actually a stock fund and a money market fund) follow both the ``positive'' and ``avoidance'' investment approaches. They look for companies with environmentally safe products, that negotiate fairly with workers, encourage employee participation in management, and provide equal opportunity. They avoid utilities with nuclear energy or companies that produce weapons systems or have business in South Africa.
Other funds following somewhat similar ethical investment principles include the Dreyfus Third Century Fund in Garden City, N.Y., 800-645-6561; New Alternatives Fund in Great Neck, N.Y., (516) 466-0808); Parnassus Fund of San Francisco, (415) 664-6812; Pax World Fund of Portsmouth, N.H., (603) 431-8022; United Services Prospector Fund of San Antonio, 800-824-4653; and the Working Assets Money Fund in San Francisco, 800-543-8800.
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