NCPA - National Center for Policy Analysis

"Socially Responsible" Investing Hasn't Clicked

February 12, 1998

As investors flood securities markets with money, cash coming in to mutual funds that pride themselves on maintaining only "socially responsible" portfolios is growing at only a trickle, according to the latest data.

  • Last year, around $530 million of new investor money was directed toward the 46 mutual funds that say they follow a socially responsible investment strategy, according to Lipper Analytical Services.
  • That compares with $9 billion forwarded last year to the Vanguard Fund's Index Trust 500 Portfolio.
  • Socially responsible investing means different things to different funds -- with some avoiding tobacco, alcohol, gambling, nuclear power and defense contracting stocks, while others cater to fundamentalist Christians or invest in companies with "progressive policies toward gays and lesbians."
  • While some of the funds posted decent returns last year, the average socially responsible growth fund achieved a 22.36 percent return over the past 12 months -- compared to a 30.88 percent return for the Standard & Poor's index.

Fund tracker Morningstar Inc. found that socially responsible funds typically have higher expenses than other funds. Wall Street observers say they represent no more than a politically correct marketing stunt and have a strong political element to them -- appealing usually to people who think of themselves as "liberal" or "progressive."

Source: Charles Gasparino and Pui-Wing Tam, "Feel-Good Mutual Finds Haven't Yet Found Favor," Wall Street Journal, February 12, 1998.

 

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