You’d think that given the striking performance of The Dow Jones Sustainability Group World Index which is up 33 percent year-to-date (outperforming the Dow Jones Global Index) and the outstanding performance of many renewable energy stocks of late, that social mutual funds would contain these stocks.
Yes, social mutual funds are winners. The Domini 400 Index has outperformed the S&P Index for nine years by 2 percentage points annually. Citizens Global Equity Fund’s one-year performance is a jaw-dropping 74 percent. All three of Citizen’s equity funds brought in three-year returns of 35 percent or better. In fact, Credit Suisse found in a recent survey that the world’s 20 largest social mutual funds averaged returns five percentage points higher than the S&P 500 Index.
Interestingly, they found they achieved this sterling performance by investing in many of the same stocks favored by the conventional investing community. The top five holdings in many of the funds are not the Ben & Jerry’s of the world, but familiar large tech companies that have been pushing the stock market forward in general: Microsoft, Intel, IBM, Cisco, Lucent, AOL (The current issue of Tomorrow Magazine lists the top 30 stocks held by over 200 social mutual funds)
It just so happens that technology and telecommunications companies and larger companies in general have better environmental performance and more progressive social policies. The largest companies are under pressure from shareholders to take the lead in environmental management, and increasingly social responsibility too. Large cap stocks are less volatile investments, which is why leading sustainable businesses like Interface and other smaller companies tend not to be included in socially responsible mutual fund portfolios.
The question is, would an investor gain exposure to the same set of stocks in a conventional fund? The funds choose the best in class, such as Merck in Pharmaceuticals (known for its employee programs) and Intel in high tech (addressing product lifecycle and stakeholder issues). And, social funds’ trademark is screening out the undesirables – companies involved in weapon manufacture, tobacco and other issues.
New social/environmental mutual funds are emerging worldwide. In Japan, for example, four eco-funds launched last year and attracted $930 million in capital in the first three months, most of it from individual investors.
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