Clean-hands mutual funds lay out strict criteria-called social screens-through which every stock or bond they buy has got to pass. Most of them screen out weapons companies, nuclear utilities and companies doing business with South Africa (except the likes of Merck, which sells “humane” medical products there). The funds say that they’re waiting for black South Africans to get the vote–or a clear path to it-before lifting the investment ban.
Beyond these basics, conscience funds diverge. Investors will have to cheek the prospectus to see if the fund services their moral goals. Most screen out sin stocks-tobacco, liquor and gambling. Most turn down polluters like Waste Management. Any fund with “environment” in its title and Waste Management in its portfolio, like the Freedom Environmental Fund, isn’t socially screened.
Some fund managers screen for hiring and promoting women and minorities. Some avoid firms that use animals for testing. The Parnassus Fund won’t support any top executive who, by its lights, is “grossly overpaid.” Several managers have shunned Corning ever since the explosive controversy over Dow Corning’s breast-implant products. A few pension funds screen for Northern Ireland.
Northern Ireland? Yep. The MacBride Principles ask an American firm doing business there not to discriminate on the basis of religion-courtesy of the Irish-American lobby. Carolyn Mathiasen of the Investor Responsibility Research Center (IRRC) in Washington, D.C., expected political activists to develop a set of Tiananmen Square principles after China so violently suppressed the democracy movement. But the idea flickered and died. “It takes a well-organized, caring community to push for this sort of thing,” she says, “and the Chinese-Americans didn’t push.”
By now, you’ll have noticed that conscience funds serve certain types of consciences-all liberal. No “First Aggressive Conservative Fund” has arisen to channel money into profitable polluters, search out high-growth nonunion companies or build a portfolio of firms that manufacture products in Mexico. Clearly, an unfilled marketing niche. Pat Buchanan, call your office.
The question facing white-hat investors is whether their ideals cost them money. On the evidence, it seems not.
In May 1990, the Cambridge, Mass., investment advisory firm of Kinder, Lydenberg, Dominiand Co. set up the Domini Social Index, which tracks the investment returns of 400 companies thought to be clean. Over that period, the good guys outperformed the Standardand Poor’s 500-stock index by 7 percent. There’s a year-old no-load mutual fund based on this index, called the Domini Social Index Trust.
The few funds that emphasize environment stocks (waste disposal, pollution control) prove that it’s the manager who makes the difference, not whether a fund is socially screened. The group as a whole dropped 9 percent over 12 months, as measured by Lipper Analytical Services. But the New Alternatives Fund, which focuses on clean-energy companies, rose 6.2 percent (not reduced for sales charges), while Schield Progressive Environmental lost a big 22.5 percent (its manager just left).
The broader conscience funds occasionally break through to stardom. In 1988, Parnassus and Calvert-Ariel Growth made Lipper’s list of top 10 funds (Parnassus has had some bad years since and Ariel Growth is closed to new investors). Pax World of Portsmouth, N.H. (a no-load fund; 800-767-1729), which topped the list of balanced funds in 1990, is rated “superior” by Morningstar, Inc., which tracks fund performance. Dreyfus Third Century in Uniondale, N.Y. (no-load; 800-782-6620), gets a nod both from Morningstar and the Mutual Fund Forecaster.
In March 1990, the teachers’ retirement fund TIAA/CREF created a Social Choice Account for members seeking clean investments. It’s up 30 percent, compared with 20 percent for the Dow Jones industrial average.
Those are just the stock funds. You can also get conscience money-market funds from Working Assets in San Francisco (800-533-3863) and Calvert (800-368-2745). Calvert, which charges sales loads, also offers a bond fund. For the names of brokers and planners who do social screening, send $45 for the Social Investment Services Guide, Social Investment Forum, 430 First Avenue North, Suite 290N, Minneapolis, Minn. 55401.
No clean-hands fund has yet made Forbes magazine’s annual Honor Roll for top long-term performance. But your yields can be above average, which is enough.
