Choose Your Investment Cause with Care

Physician's Money Digest, November30 2003, Volume 10, Issue 22

Socially responsible mutual fundshave been around for more than30 years. While these funds haveoutperformed regular funds inthe past 3-, 5-, and 10-year periods, a newstudy by researchers at the WhartonSchool of the University of Pennsylvaniasuggests caution when investing in them.

Technology Supporter

NewYork Times

Socially responsible funds avoid companiesinvolved in the alcohol, tobacco,gambling, or military industries and companiesthat pollute. According to a article, the typical sociallyresponsible fund has an oversized allocationtoward technology stocks.

Morningstar (www.morningstar.com)notes that the average socially responsibleequity fund allocated 23% of its portfolioto the technology and telecommunicationssectors during the past 5 years.Generally, other equity funds invest14.5% of their portfolios in these sectors.While socially responsible funds, on average,outperformed other stock mutualfunds in the 1990s, are they a wise investmentstrategy today?

Researchers at the Wharton Schoolfound that because socially responsiblefunds are more oriented toward growthstocks than value stocks, investors' portfolioscould suffer in the long run. Doesthat mean you should forgo investing insocially responsible mutual funds? No,but as with any wise investment decision,you should make sure the fund's investmentstrategy matches not just your conscience,but also your wallet.

Investor Responsibility

In addition to analyzing the criteriasocially responsible funds utilize, makecertain to check out their investmentobjectives. For example, the CitizensIndex Fund (800-223-7010) avoids companiesthat violate environmental lawsand have below-average environmentalrecords for their industry. The fund,whose objective is large growth, posted a3-year average return of 18.9%.

Financial Advisor

There are other issues to considerwhen deciding which socially responsiblemutual fund to invest in. Accordingto an article in , manysocially conscious funds have relativelyhigh expense ratios because they aresmall and lack the economies of scale. Inaddition, many of these funds are newand have very brief track records onwhich to base investing decisions.

Another consideration is that societyhas become more aware of political andsocial issues. As a result, other categoriesmay eventually be included in the screeningprocess. This would narrow the fieldin terms of viable investment options. Still,socially conscious mutual funds deserveconsideration as part of a well-balancedinvestment portfolio.