Socially Responsible Mutual Funds that Can Go the Distance
Socially responsible mutual funds are a relatively recent phenomenon, but now there are a number of options for people who wish to invest according to their values.
Recently, the markets have been as turbulent as an August thunderstorm. Most successful investors, however, ignore short-term fluctuations and focus on long-term gains. A look at the last five years reveals social mutual funds that have not only beaten the market, but most of their peers as well. All figures quoted are as of the end of the first quarter this year, March 31.
Domestic Equity Funds
Domestic equity funds are mutual funds investing in large-, medium- or small-"cap" U.S. firms (cap, or capitalization, is the market value of an entire company). The scorcher in this category is the IPS Millenium Fund, which is a multi-cap fund because it invests in all three company sizes. It yielded an average annual return of 20.94 percent over the last five years, handily outperforming the 14.21 percent achieved by the Standard & Poors 500 (S&P) for the same period.
IPS Millenium takes a unique approach in selecting companies. "The fund’s philosophy is to read think-tank research in order to predict where civilization is going in the next three to five years," says Dr. Robert Loest, senior portfolio manager of the fund. Loest searches for companies that, among other factors, dramatically reduce the cost of critical resources and enhance living standards and life expectancies.
Other hot equity funds include Citizens Emerging Growth Fund (with a five-year average annual return of 18.26 percent), the Ariel Appreciation Fund (18.19 percent) and the Parnassus Fund (17.47 percent).
Balanced funds, which invest in both stocks and bonds, have been hit hard by recent market volatility. However, some funds still have outstanding five-year returns. The most consistent top performer is Pax World Balanced Fund. Launched in 1971, it is the oldest social mutual fund but is showing that it can still sizzle financially. Over the last five years, it has had an average annual return of 14.53 percent, putting it in the top four percent of all balanced funds, both social and conventional.
"Our funds attempt to promote world peace by investing in non-war-related industries," says Anita Green, Pax World’s director of social research. Pax also avoids tobacco, liquor, gambling and nuclear power, and proactively identifies companies with superior social and environmental practices.
The Green Century Balanced Fund, with a five-year average annual return of 14.85 percent, is of special interest because the fund manager donates all profits to nonprofit environmental advocacy organizations.
International funds have been hammered during the past 12 months. However, the Citizens Global Equity Fund, with a 13.97 percent average annual return over the past five years, is in the top 15 percent of all international funds.
Along with an in-depth understanding of foreign markets, Citizens" marketing manager Kathleen Feeks attributes the fund’s success to effective social research. Citizens" two-step process excludes firms involved with products such as firearms and seeks out companies that are leaders on corporate social responsibility issues.
"Our social screening," says Feeks, "provides us with an accurate assessment of a company’s corporate responsibility and assists us in identifying potential impediments to performance."
Bond funds, or fixed-income funds, aim to achieve stable income with low risk. Unlike the preceding two categories, bond funds are doing well in the current market. Over the past five years, the Calvert Social Investment Fund Bond Portfolio has been the best performer, with an average annual return of 7.02 percent.
While past performance is certainly an important factor in choosing investments, it is by no means the only consideration. Reading up on personal finance will help you make informed decisions. You may also consider talking with a social investment professional.
MARK THOMSEN is news editor at SocialFunds.com.