Socially responsible, and rewarding 23 of 42 such funds awarded top ratings

Mutual Funds

August 30, 1998|By Jerry Morgan | Jerry Morgan,NEWSDAY

Investors holding "socially responsible" funds have found they can do well while doing good.

Steven Schueth, president of the Social Investment Forum, said at the end of the second quarter that 23 of the 42 funds tracked by the forum had earned top ratings from either Morningstar Inc. of Chicago or Lipper Analytical Services Inc. of Summit, N.J. Schueth said 20 of the funds had earned A or B ratings in their respective Lipper Categories, and 11 funds carried three years of four or five stars from Morningstar.

"When it comes to performance, green means green, both in terms of the environment and shareholder returns," he said.

While the Standard & Poor's 500 index soared in the past three years, setting a benchmark most funds couldn't meet, a number of socially responsible funds have roared past it. Fund managers say it is no accident that the way they screen companies helps them find better managements overall, which translates into better performance.

Amy Domini, founder and manager of the Domini Social Index Trust, cited investment gurus Benjamin Graham and David Dodd as saying the single most important financial asset of a company is the quality of management.

Domini's 400-company index fund includes 250 companies in the Standard & Poor's 500 index, as well as 150 other businesses that pass its screening on issues concerning the environment; labor relations; consumer products; defense, weapons and nuclear involvement; alcohol, tobacco and gambling; human rights; and animal testing.

"If you have a company that has labor, environmental or diversity problems, you often get a picture of hidebound management," she said. "I am hoping that over time the social rating will be seen as a valuable financial tool for looking at management and corporate culture."

But the Domini Index Fund is still a large company growth fund, and, Domini said, the top 20 companies are what has driven it. The companies are still rated on standard fund criteria such as price-earnings ratios, price-to-book value, consistency of earnings and the like. Then they are screened.

Laura Lallos, a Morningstar analyst who follows this category of funds, said such funds are "large-cap, blue-chip-oriented" and that "having a lack of tobacco stocks has helped this year, and there is a leaning toward tech stocks, which passes a lot of the screens, which also helps."

The basic screens generally have been considered the classic liberal filters, and not everyone uses them.

"There are socially responsible liberal funds and socially responsible conservative funds," said Stephen Ally, national marketing director of the Timothy Plan, a fund based in Winter Park, Fla. The conservative funds often have screens to filter out investments that don't meet their religious beliefs.

"We are a conservative fund," Ally said. "We screen for abortion, pornography, alcohol, tobacco and gambling."

The Noah Fund, which started about two years ago in Philadelphia, won't invest in alcohol, tobacco, gambling or anything to do with abortion. It also won't buy General Electric Co., not because of its defense and nuclear businesses but, said President Bill Van Alen Jr., "because it owns NBC, which puts on pornographic shows to titillate young people, shows where they talk about whether to have sex on the first or third date." Noah also won't buy the Disney Co., he said, because of a division that puts out "pornography, R-rated movies."

The Aquinas Funds, based in Dallas, are Catholic-values oriented funds, said President Frank Rauscher. They screen for abortion, contraception and pornography. But, Rauscher said, "We are proactive. We buy stocks on financial merits and try to work on companies to get them to change what they do."

The Amana Funds, managed by Saturna Capital in Bellingham, Wash., invest according to Islamic principles, said Phelps McIlvaine, a member of the investment committee.

That means no investments in meatpackers that sell pork, as well as prohibitions against alcohol, tobacco, gambling and pornography.

And, because of the Islamic prohibition against usury, no investments can be made in banks, loan associations, brokerages and insurance companies which pay or collect interest.

Pub Date: 8/30/98

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