NCPA - National Center for Policy Analysis

"Socially Conscious" Mutual Funds Are Costly

June 8, 2000

Investors who wouldn't dream of being politically incorrect often steer their money into "socially conscious" mutual funds. These funds shun companies which have gray rather than green environmental records, or are known to be anti-union, or make such products as nuclear power, tobacco or alcohol.

But being socially conscious gets expensive, because in addition to having to hire teams of financial analysts these funds need to pay a separate team of social engineers.

  • An efficient mutual fund is generally considered one which runs up $1 of expenses or less per year on each $100 in assets.
  • But socially conscious funds can have annual expenses ranging up to nearly double that figure.
  • There are about 175 funds which conduct social screens and the investing public has put about $154 billion into them.

The funds have differing criteria as to what corporate conduct is socially reprehensible. One fund's poison may be another fund's clean slate.

Observers report that the rules are further clouded by such considerations as how long to wait before forgiving a company for having a polluting accident. Or what to make of a merger between a righteous and a naughty company?

Source: Rob Wherry, "The Cleans and the Greens," Forbes, June 12, 2000.


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