Before You Plunge Into SRI Funds ...
BOSTON — Some points to consider before putting together a social responsibility investing (SRI) portfolio:
* Most SRI funds are relatively new. According to Morningstar, which follows 56 SRI funds, only 21 have five-year track records, and just 10 have been around for 10 years. This means that many SRI funds have not experienced a significant market downturn, something to consider when choosing any mutual fund for investment.
* Most SRI fund managers have had a short tenure, so even funds with longer track records have managers with four years experience or less.
* Make sure that the fund reflects your values.
Some funds eliminate tobacco stocks only and sell themselves as SRI funds. So you need to dig beneath the surface.
* There are also few choices when it comes to international diversification. Morningstar tracks just two SRI funds with an international focus (Citizens Global and Calvert World Value), and most domestic SRI funds have little or no exposure overseas. Calvert World (800-368-2748) averaged a 13.8 percent annual gain over the three years ending June 30, while Citizens Global (800-223-7010) was up 18.6 percent.
* Performance has always been an issue for proponents of SRI. The goals are often viewed as naive, and the perception has been that SRI mutual funds inevitably underperform more traditional, comparable funds.
But this isn't always the case. For example, Citizens Index Fund gained an average of 31 percent a year over the three years ending June 30, matching the Standard & Poor's 500 index. The Domini Social Index fund (800-762-6814) also matched the S&P 500 for this period. Ariel Growth (800-292-7435), which invests in mid-sized companies, gained an average of 26.3 percent a year for the three years ending June 30.
* SRI bond funds have done well compared to the bond market as a whole. Because most SRI bond funds avoid US Treasury bonds, they tend to invest in higher yielding corporate and US agency bonds. This may explain a good deal of their return.
For example, Citizens Income (800-223-7010) has performed somewhat better than the overall bond market. It has returned 8.5 percent annually over the past three years.