Money and conscience
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January 9, 1998: 6:31 p.m. ET
More investors eye funds with a social edge, but performance still lags
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NEW YORK (CNNfn) - Assets in mutual funds with a social mandate climbed 800 percent in the past two years, but the returns haven't kept up the same blistering pace.
Investors poured $96 million into socially responsible funds in 1997, up from $12 million in 1995, according to the Social Investment Forum, a non-profit research group in Washington, D.C. And the number of funds jumped from 55 to 144.
But performance hasn't followed the same path, industry watchers say. Socially screened funds have generally performed in the bottom third of the "mutual fund universe," said Jon Hale, an analyst with Morningstar Inc., a mutual fund tracker and financial publisher based in Chicago.
Other "boutique" funds with social agendas are so new they don't have track records, Hale said.
Only eight funds exceeded the Lipper Growth Fund three-year average of 25.57 percent as of November 1997, the Social Investment Forum found. Only the Domini Social Equity Fund came within a percentage point of matching the S&P 500 three-year average of 31.03 percent.
One well-known underperformer is Calvert Group, a Bethesda, Md.-based company that manages 10 socially responsible funds.
Hale said Calvert's poor returns dragged down the overall performance of 42 socially responsible funds tracked by Morningstar. Excluding Calvert, socially responsible funds in the survey perform about the same as other funds, he said.
Calvert hired a new chief executive, merged two funds and hired a new fund manager to help improve the bottom line.
Barbara Krumsiek took the top post at Calvert in April 1997. Soon afterwards, Krumsiek put James Awad in charge of the New Vision Small Cap Fund. Awad is well-known in the industry and is ranked 33rd in Barron's 1997 Top 100 Money Managers.
Krumsiek argued two of the company's funds compare favorably to industry averages.
The Calvert World Values Fund had a three-year average of 8.9 percent, compared with 7.95 percent for the Lipper International Fund average, Krumsiek said.
The Calvert Capital Accumulation Fund had a three-year rate of 22.76 percent, compared with the Lipper Mid Cap Fund rate of 22.54 percent, she said.
"We're striving for good performance," Krumsiek said.
Hale argued that a comparison to an average isn't impressive. All it means is the fund is a hair above average, he said. Instead, investors should look at whether a fund places in the top percentiles.
But some investors are satisfied. Beate Arndt, comptroller of Gentle Strength Cooperative, a natural food cooperative in Tempe, Ariz., thinks it's important to pair conscience and capitalism. Arndt is trustee of the cooperative's 401(k), which offers seven Calvert funds.
"If we can channel our investment dollars to companies that have a positive impact, it enhances society," Arndt said. Calvert's favorable comparison to Lipper averages is good enough, she said.
A survey by the Social Investment Forum showed assets in socially responsible portfolios more than doubled between 1995 and 1997, from $639 billion to $1.18 trillion. These assets include money in endowments and pension funds with social agendas, as well as community-targeted investments.
"The whole idea of socially responsible investing is skyrocketing," said Alisa Gravitz, vice president of the forum. "When you're putting a lot of money into something, you want to get a good financial return, but you also want your money to do good things."
Hale believes that social screens don't affect the bottom line in an investing world with thousands of funds to choose from. As the "socially responsible investing universe" continues to grow, investors will see better returns, he said.
Some socially responsible funds, like the Domini Social Equity Fund, have been successful, Hale said. Another winner, the Parnassus Fund, ranked in the top 12 percent of Morningstar's Small Cap Values Funds average as of November 1997, he said.
The Parnassus Fund ranked among the top 10 mutual funds in 1994, according to the Social Investment Forum. It had a bad year in 1995 and rebounded in 1996. Its one-year average is 35.81 percent, compared with 16.1 percent over three years, the group found.
Jerome Dodson, president and portfolio manager of the Parnassus Fund, said his investment philosophy has been to combine social and financial factors. The fund is also "contrarian" -- it buys stocks that are out of favor on Wall Street, he said.
"Our investors want to make good returns as well as invest in socially responsible companies," Dodson said. "If you want to make a (charitable) donation, I'm all in favor of it, but that's not the reason to buy a mutual fund."
-- By staff writer Martine Costello
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