Doing Well With Do-Good Funds



Doing Well With “Do-Good” Funds

Publication: Financial Management Magazine

By Larry David Hansen

In the early 1970s, a handful of mutual fund managers decided that there was more to investing than watching the bottom line. Not that any of them abandoned the idea of making money for their clients, but they started to restrict their investments to companies that they felt improved the quality of life. That small movement of so-called socially responsible funds never gathered significant support in the “me decade,” and few investors paid much attention to the novel approach to investing until about two years ago.

In the past two years the number of funds with social investment criteria has doubled, as have the assets invested in these funds. Renewed fears of American military activity, concern about environmental safety and the well publicized troubles of the nuclear power industry have all contributed to the renaissance of the social funds.

Some experts say that the field will continue to grow. “This is an area of investing that is just beginning to be discovered,” says Amy Dominy, an investment advisor with Moseley Hallgarten, and the author of Ethical Investing. “There are a lot of people who are uncomfortable about what implications their investments have.” If you count yourself among those uncomfortable investors, here are some of the funds you might want to consider.

Pax World

This no-load fund is considered by some to be the one that started the entire social fund movement. It all began when a Portsmouth, N.H., broker named Anthony Brown chided two Methodist clergymen about investing in companies that conflicted with their moral tenets. “You preach brotherhood and peace on the weekend, yet invest in war funds from Monday through Friday,” he remembers saying. The two clergymen recognized the perceptive irony in Brown’s remarks, and decided to do something about it. In 1971, they joined with Brown and his brother Paul to form Pax World, Inc.

The fund will not invest in the 100 largest defense contractors, or in any company that derives more than five percent of its sales from weapons. In addition, Pax World doesn’t invest in alcohol, tobacco or gambling companies. “Our shareholders want a fair return, but they want to do it in a way that doesn’t hurt anyone,” says Brown, who is now the fund’s manager.

Results have been rewarding. Over the past three years the fund has gained 41 percent, and it was up 10 percent in the 12 months ending March 31. Among Pax World’s recent investments were the Maytag Company and Central Louisiana Electric Company, a non-nuclear utility. Initial investment in the fund must be at least $250. Subsequent investment minimum is $50. For a prospectus, call 603-431-8022.

Calvert Social Investment: 1983’s Top Money Fund

The Calvert Social Investment Fund began in 1982 on the philosophy that “socially responsible companies are, in the long run, more productive and offer better investments,” according to Grace Parker, assistant vice president for the fund.

One of the more diverse funds in the field, the Calvert Social Investment Fund refuses to invest in companies that produce alcohol, tobacco, nuclear energy or weapon systems. Also taboo are firms with operations in South Africa, and those that violate environmental laws or union standards. The fund favors companies with a socially conscious attitude. For example, a company that produces renewable energy, or one that offers workers childcare service, are potential investments for this Calvert fund.

The fund contains two portfolios: managed-growth and money market. According to Donoghue’s Money Fund Report, the Calvert money market portfolio, with an 8.9 percent payout, was the highest yielding general purpose money market fund in 1983. About 34 percent of the short-term money market investment has been in certificates of deposits. Another 45 percent has been equally divided between commercial paper and repurchase agreements.

The other portion of the Calvert Social Investment Fund, the managed growth portfolio, is mostly in stocks and bonds with some short-term money instruments. The same investment criteria apply. Among recent holdings were shares of Magma Power, Fort Howard Paper and Genentech. The fund was up less than two percent over the 12 months ended March 31.

Initial investment for the Calvert Social Investment Fund is $1,000. Additions must be $250 or more. There’s no sales charge and investors may switch into four other Calvert funds. For a prospectus call 800-368-2748.

Working Assets

The second socially responsible money fund was formed only last September, but already Working Assets Money Fund has $12 million in assets. Jerome Dobson, president of the fund, favors sort-term paper representing loans to small businesses, higher education and family farming. In certificates of deposit, the fund leans toward savings and loans that finance housing or banks with a good record of lending in their communities. Working Assets will invest in commercial paper of large corporations, but not those that produce nuclear energy or military goods, or companies that invest in countries with repressive regimes.

The fund looks for firms with safe environmental records, a history of equal employment opportunity and a record of charitable contributions.

The minimum initial investment in the San Francisco-based fund is $1,000. Subsequent investments must be $100 or more. For information, call 800-543-8800.

New Alternatives Fund

“Oil is a finite resource. Eventually, it will no longer exist,” says Maurice L. Schoenwald in explaining the reason for New Alternatives Fund, which has 95 percent of its assets invested in alternative energy.

Schoenwald, the fund president, believes that photovoltaic, geothermal and other alternative energy sources will become more important. But, since they are not yet cost-effective, New Alternatives also invests in energy conservation.

Among the fund’s recent investments are Acro Energy (water systems), AFG Industries (solar glass panels), Ametek (photovoltaics) and Geo Thermal Resources. Another holding is Johnson Controls, which specializes in thermostats.

This long-term growth fund requires an initial investment of $2,650 ($2,500 plus a six percent load), and at least $500 for additional investments. In the 12 months ending March 31, the fund was down 2.6 percent. For a prospectus call 516-466-0808.

Dreyfus Third Century

The largest fund family that strives for a socially responsible portfolio is Dreyfus. Since it began in 1972, the Dreyfus Third Century fund has sought out companies with good employment records and avoided those that violate federal health, safety and environmental standards.

“We look at companies that have better than average performances and which meet our socially responsible standards,” says Jeffrey F. Friedman, the fund’s president. The fund is widely diversified, holding about 40 different stocks at any one time. At the beginning of this year, Dreyfus Third Century had no bond investments. A recent major holding is Santa Fe Southern Pacific Railroad.

Despite its restrictive investment policies, the fund actually outperformed the average Dreyfus fund in 1983. Total return for the year was 19 percent – about three percentage points higher than the average fund in the family. For the 12 months ended March 31, the fund was up 9.6 percent.

Telephone switching is permitted. Initial investment in this no-load fund must be at least $2,500. Additions must be $100 or more. For a prospectus, phone 800-654-6561.

Pioneer Funds

The three equity portfolios in the Pioneer Group are unusual because they have never claimed the social fund label. Even so, since the inception of Pioneer Fund in 1928 and continuing with Pioneer II (1968) and Pioneer Three (1982), the group has refused to invest in companies that produce alcohol or tobacco. Although fund officials don’t keep the restrictions a secret, they are not official limitations and will not be found in any prospectus.

All three funds have similar portfolios. The newer funds were created to prevent the older portfolios from becoming unwieldy as assets grew. Recent holdings include General Electric and Control Data (Pioneer Fund), Scotty’s Inc. (Pioneer II) and H.J. Heinz (Pioneer Three). Gains over the 12 months ended March 31: Pioneer Three was up 13.5 percent, Pioneer II, 10.1 percent and Pioneer Fund, 7.6 percent.

Pioneer Three requires a minimum initial investment of $1,000; subsequent investments must be at least $100. The other two funds ask only $25 for initial and subsequent investments.

Each fund is sold with a maximum 8½ percent load. For more information, call 800-225-6292 or 617-742-7825 (collect in MA).

Although socially responsible funds have attracted increased investor attention over the past two years, there are signs that interest is cooling. Two new funds in the category were set to open shop this year. Both have been put on hold. Some observers speculate that potential buyers of the funds evaporated as investors viewed the difficult 1984 stock market and decided that it was hard enough to make money without limiting choices. Even so, the existing social funds will continue to insist that investors can do well by “doing good.”

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