Socially Responsible Investing

Arthur Stein Financial, LLC |
Many Americans care enough about environmental, human rights, moral and religious issues to prefer investments that either support these or do not cause harm. They care about Socially Responsible Investing (SRI).
Morningstar defines Socially Responsible mutual funds as
“Any fund that invests according to non-economic guidelines. … may make investments based on … environmental responsibility, human rights, or religious views. A socially conscious fund may take a pro-active stance by selectively investing in, for example, environmentally-friendly companies, or firms with good employee relations. This group also includes funds that avoid investing in companies involved in promoting alcohol, tobacco, or gambling, or in the defense industry.”
The three most common forms of SRI are funds composed of companies that:
  • Do not profit from alcohol, defense, tobacco or gambling
  • Do not have a negative effect -- or have a positive effect -- on the environment or human rights.
  • Follow religious tenants.
For my investment clients who prefer SRI investing, I created a US stock portfolio using SRI funds. I searched the Morningstar database for funds deemed Socially Responsible and then excluded SRI funds that were:
  • Religious based
  • Sector specific (water or clean energy)
  • Allocation funds or
  • Did not seem to have a firm commitment to SRI.
That left 14 funds. After comparing them, I chose five funds from four fund companies for a US stock portfolio. I then added a US Real Estate Investment Trust for better diversification.
While SRI funds are not necessarily the most cost-effective or best performing, the resulting portfolio compared favorably with my standard US stock portfolio. Some differences and similarities:
  • Performance was similar
  • Diversification was lower
  • Fees were slightly higher
  • Volatility (measured by Standard Deviation and Beta) was higher.
Balancing the positives and negatives, it was a portfolio that I am comfortable offering to clients.
Attempts to construct acceptable SRI portfolios for bonds and international stocks did not produce a positive result. Few funds are available and the resulting portfolios did not meet my standards.
Please contact me if you are interested in Socially Responsible Investing.