Managers for these funds, known sometimes as "sustainable,
responsible impact" or "environment, social and governance" funds,
focus on companies that promote values like diversity, and avoid
companies and industries that they see as morally problematic, such
as tobacco.
Investors have been pouring money into socially responsible funds,
including Vanguard FTSE Social Index Fund Investor Shares and
iShares MSCI KLD 400 Social ETF.
U.S. socially responsible funds held $6.57 trillion at the start of
2014, officials said late last year at a sustainable investment
conference, up from $3.74 trillion at the start of 2012.]
The funds made up roughly 18 percent of all managed assets at the
start of last year, up from 12 percent two years earlier, they said.
There are currently 412 U.S. socially responsible funds up from 375
in 2009, according to Morningstar.
Advisers say the funds are performing better because more financial
institutions offer socially responsible index funds now, which have
lower management costs and therefore often offer better returns than
their actively managed counterparts, said Kenneth Klabunde, an
Indianapolis-based adviser and founding principal of Precedent Asset
Management.
Long-term returns for some indexes tracking sustainable, responsible
U.S. companies, such as the Calvert Social Index, were on par with
the S&P 500 and other broad market indexes, according to a 2014
TIAA-CREF study.
For example, the Calvert Social Index Fund, which tracks that index
and holds stocks including Apple, Inc. and Microsoft Corp showed a
return of 13.75 percent for 2014, versus 13.69 percent for the S&P
500 for the same time period, according to Morningstar.
There may be other advantages to investing in socially responsible
funds. Clients who believe in the values of the companies they
invest in may be less likely to sell when the market tanks because
“they feel more connected to their strategy,” said Dan Kern,
president of Advisor Partners in Lafayette, California.
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MAKING SENSE OF THE TREND
As with conventional mutual funds, there are good and bad options
for socially responsible investing, said David Kathman, a senior
analyst at Morningstar.
Keeping costs as low as possible is critical, Kern said. Kern is
able to use low-cost SRI index funds with management fees ranging
from .25 to .45 percent. Fees for actively managed SRI funds are
usually north of 1 percent, he added.
Kern helps advisers customize socially responsible portfolios for
clients using mock portfolios to show how omitting fossil fuel
stocks and other sectors can affect performance versus a
traditional, unrestricted portfolio.
Clients who embrace socially-responsible investing typically put 30
percent to 80 percent of their assets in such funds, advisers said.
(Reporting by Robyn Post; Editing by Suzanne Barlyn, Paritosh Bansal
and Diane Craft)
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