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Ethics-based investing

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Some foundation trustees shun ethical investments out of concern about inferior returns. But several studies conducted over the last decade by financial analysts have eased that worry. Despite some exceptions, many mutual funds, for instance, that consider the social and environmental impact of their investments compete well against standard funds.

In the 12 months that ended in November, several funds that consider the impact of their investments upon social welfare — including the New Alternatives Fund, the Parnassus Fixed-Income Fund and the Catholic Equity Fund I — performed in the top ranks of standard mutual funds in the same categories, according to SRI World Group.

Broad indexes of stocks selected because of their companies' social concerns also have tended to keep pace with standard indexes. The Domini 400 Social Index is modeled on the Standard & Poor's 500 Index, a widely used measure of market performance. While results from the two indexes tend to leapfrog each other over short periods, from 1990 through November the Domini index has outperformed the S&P 500 by nearly 6%.

From its inception about 18 months ago through November, KLD Research & Analytics' Global Climate 100 Index — made up of companies selected for their efforts to reduce climate change — rose 22.03%. In the same period, by comparison, the MSCI World Index, which measures general corporate performance in the U.S. and 22 other major developed nations, rose 20.73%.

"After controlling for investment style," said economists at Maastricht University in the Netherlands who studied U.S., U.K. and German mutual funds, "we find little evidence of significant differences in risk-adjusted returns between ethical and conventional funds.

Source: Times reporting

Copyright © 2014, Los Angeles Times
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