INVESTMENT OUTLOOK : ASSESSING 1987 : HEARTFELT : Social Funds Weathered the Crash While Sticking to Goals
Cindy Chin believes in the bottom line--”the double bottom line,” that is.
The double bottom line, explained Chin, vice president of the Calvert Social Investment Fund in Bethesda, Md., is a simple but important determinant of whether to invest in a stock. “We first screen our investments on the basis of financial soundness and then screen them on social criteria,” she explained.
Launched in 1982, Calvert is one of the 11 mutual funds known in various quarters as social, socially responsible or ethical investments. At Calvert, social investing means no money to companies helping produce nuclear power or weapons systems, no money to companies doing business in South Africa and no money to companies that discriminate against women or minorities.
“We believe long-term rewards will come to investors from companies that do right,” and that’s where Calvert puts its clients’ money, Chin said.
Over the first 11 months of 1987, Calvert’s investment fund performance wasn’t dazzling, but it managed to finish ahead of the overall market. As of Nov. 25, the investment fund was up 2.25%, compared to 0.8% for the Dow Jones industrial average and a decline of 8.9% for the NASDAQ over-the-counter composite index.
In fact, all but one of the nine investment funds and both of the money-market mutual funds in the field of social investing outperformed the broadly based NASDAQ index. That’s largely because many social investment funds have held up comparatively well since the October collapse.
Even so, the funds’ results have suffered lately. For instance, the San Francisco-based Parnassus Fund was up 40.8% through Sept. 30. Then came Black Monday. “We got hammered,” said Andy Rubinson, the fund’s vice president. As of Nov. 25, Parnassus was off 8.66% for the year. Some social investment funds such as Calvert’s, which had 30% of its holdings in cash, fared better.
Despite the recent buffeting, Parnassus’ investors are not deserting the fold, Rubinson said. A lot of the fund’s 920 shareholders have added to their accounts in recent weeks “since this is a good time to invest,” with almost every stock undervalued, Rubinson said.
Nonetheless, he said Parnassus has been slow coming back because most of the recent recovery in the market has been in blue chip stocks like IBM, not in the “secondary market” stocks Parnassus holds. Besides its social focus, Parnassus is what is known as a contrarian fund--buying quality stocks currently eschewed by other investors in the hope of achieving major gains when these investments regain favor.
Generally speaking, social investing means taking into consideration the social consequences of what your money is doing. But the definition clearly is broad enough to be interpreted in different ways by different people. For example, there are the three Pioneer funds, which some critics don’t consider social investments at all.
Pioneer was launched in the 1920s. To please a group of religiously oriented people, Pioneer would not invest in any “sin stocks”--no alcohol or tobacco companies. Pioneer’s three funds are far and away the largest of the 11 socially screened funds, but this is partly attributable to the fact that their investment criteria are easily the loosest of the group.
All of the Pioneer funds have substantial investments in South African-invested companies and in companies with large military contracts, noted an April research report by Insight: the Advisory Letter for Concerned Investors. The report said Pioneer’s definition of social responsibility “is certainly much narrower than any of the other funds generally included as socially screened funds” and concluded that “for investors whose social concerns extend beyond alcohol, tobacco and drugs, we think you can do better elsewhere.”
Calvert and Working Assets are generally thought to have the most rigorous social screens, with Working Assets being perhaps a bit stricter on labor-related issues. Its promotional material states specifically that it won’t invest in any company that is on the AFL-CIO’s “Do Not Patronize” list. “Your savings won’t finance: missiles, nuclear power, apartheid, toxic wastes, job discrimination. Your savings will finance: housing, education, farming, small business, energy conservation,” the brochure for the San Francisco-based fund stresses.
Indeed, several of the funds attempt to not only avoid investing in companies that are perceived to be engaged in harmful activities but to foster investment in companies that are doing something beneficial. For example, the New Alternatives Fund based in Great Neck, N.Y., focuses on solar and other alternative energy sources, said David Schoenwald, the fund’s vice president. “We’re required by definition to have 25% in that concentration,” Schoenwald said. “We try to get as close to 100% as we can.”
New Alternatives is the smallest of the funds, with $4.8 million in assets as of Sept. 30. The fund did well last year, but tailed off this year and moved into the red for 1987 after the October crash. Schoenwald said the stocks the fund holds in the solar cell business, geothermal energy and co-generation all are doing poorly, at least partly because of the drop in the worldwide price of oil, the main competing energy source.
Overall, nearly $7 billion is invested in the 11 social investment funds, and the investment of more than $300 billion has been affected by the movement, including billions that pension funds have pulled out of companies with South African interests, according to the Social Investment Forum, a Boston-based information center.
The Pax World Fund, the oldest existing fund other than Pioneer, was launched in 1971 when Anthony Brown, an East Coast financial adviser who was opposed to the war, persuaded two church officials to help him start a mutual fund that would not invest in any weapons companies.
Most of the other funds started in the 1980s, in some respects paralleling the movement of individuals, universities and government pension funds against investing in companies with ties to South Africa. The trend has become so significant that there now are investment advisers and newsletters for “socially responsible” investors who like to take a greater role in their investment programs.
Investment professionals concede that the proper “social” choices can be as difficult to make as the financial decisions. Recently, some Calvert investors asked the fund’s advisers to reconsider its holdings in Noxell Corp., a cosmetics company, because it uses animals in research, according to Heidi Soumerai, an investment officer at U.S. Trust Co. in Boston who does social screening for Calvert. She said Noxell has cut back on its animal testing and is exploring alternatives, so Calvert decided to hold onto the stock.
Along the same lines, she said the Quaker Oats Co. is “good on equal employment” but that some investors had raised concerns because the company makes Cap’n Crunch, a cereal with high sugar content. On the other hand, she said, the company makes several highly nutritious cereals and, on balance, passed Calvert’s tests.
“I’m not sure there is a pure company,” said Soumerai, who has reviewed hundreds of firms. Then, she added, “I’m not sure I have any pure friends.”
HOW SOCIAL INVESTING FUNDS STACKED UP
9/30/87 1/1-9/30 FUND OBJECTIVE ASSETS RETURN Ariel Growth Fund Growth $ 7.0 mil 35.1% Calvert Social Invest. Growth/Income $174.1 mil 18.2% Dreyfus Third Century Growth $178.9 mil 26.9% New Alternatives Specialty $ 4.8 mil 14.9% Parnassus Contrarian $ 7.1 mil 40.8% Pax World Balanced $ 77.2 mil 18.5% Pioneer Fund Growth/Income $1.576 bil 35.9% Pioneer II Growth/Income $4.069 bil 34.2% Pioneer III Growth/Income $712.7 mil 23.2% Calvert SIF Money Mkt. Money Market $66.0 mil - Working Assets Money Market $110.0 mil - S&P; 500 32.9% 0.8% NASDAQ OTC Composite 27.4% -8.9%
1/1-11/25 FUND RETURN Ariel Growth Fund 2.8% Calvert Social Invest. 2.3% Dreyfus Third Century 0.7% New Alternatives -7.0% Parnassus -8.7% Pax World 2.6% Pioneer Fund 2.4% Pioneer II -3.1% Pioneer III -12.8% Calvert SIF Money Mkt. 4.8% Working Assets 4.8% S&P; 500 NASDAQ OTC Composite
Source: Lipper Analytical Services in New York
