Charles Schwab, researched socially responsible funds and chose Parnassus Fund. He opened an IRA account, and has salted away $20,000 towards retirement.
He chose Parnassus because, like many of its socially responsible peers, it eliminates tobacco, alcohol, weapons makers and casino gambling companies. Next, its analysts look at each company’s history to make sure management hasn’t been cited for human rights abuses or exploitative labor practices either here or abroad. From there, the list of remaining companies is sorted according to financial criteria. Since most socially responsible funds perform similar screenings and interviews to narrow their list of holdings, you might think that they’re all pretty much alike. They aren’t. The 67 socially conscious funds Morningstar tracks come in all sorts, and each takes a different approach to balancing market performance with corporate responsibility.
The Ariel Appreciation Fund and the Ariel Fund, for instance, focus on small and mid-size companies that have been overlooked by the market. Parnassus looks for "contrarian" picks, stocks with strong financials that are temporarily out of favor but poised for a turnaround. Dreyfus Third Century, managed by Maceo K. Sloan of NCM Capital Management, and Domini Social Equity funds concentrate on large-cap stocks, the big corporations that dominate the American economy.
THE TOP PERFORMERS
To give you a start sorting through the dozens of socially responsible funds out there, we screened the group at Morningstar’s Website (www. morningstar.net). We ranked funds by average annual total return over the last five years; we normally judge funds on their three-year results, but chose a longer period this time. Our reasoning: socially sensitive investing is something of a specialty, and
it makes sense to find companies that have been at it for a while. Secondly, the field of socially responsible funds hasn’t grown that much over the past two years. Nine funds have joined the list since January 1, 1996, and five have been launched since the beginning of 1997. Finally, as with other be fund screens, we looked for no-load funds, the type that won’t hit you with a sales charge for depositing or withdrawing money.
Our top long-term pick was Domini Social Equity fund, which averaged 26.80% over the past five years. In 1998, the fund returned 32.99%, while it was up 7.24% as of April 30. The portfolio, true to its socially responsible mission, is heavily invested in such high-tech companies as Microsoft (Nasdaq: MSFT), Coca-Cola (NYSE: KO), and Merck (NYSE: MRK).
Of course, since no two funds are alike, we suggest that you read through a prospectus to see if your views and those of the portfolio manager jibe. Another consideration: just how socially responsible is the fund company itself? Ariel Capital Management, for instance, participates in scholarship programs in Chicago and has gone as far as starting a school on the South Side.
"In our eyes, it’s not just how you invest," says Rogers, "it’s how you act, as well."