If you believe that companies that are strongly committed to socially and environmentally sound practices will outperform their peers in the long run, then you would expect so-called socially responsible investment (SRI) funds to deliver superior returns to investors.
The trouble is, they don’t. Sure, some years the mutual funds run by the Calvert, Domini, Parnassus and the rest do very well—they excelled during the tech boom of the late 1990s because they tend to eschew heavy industry—but other years, they lag market indexes. Over time, most track the broader market.
Over the three years ending December 31, 2009, for instance, among the big SRI funds, Calvert Social Investment is down by a cumulative 13.02%, Domini Social Equity is down by a total of 16.2% and Parnussus Equity Income is up by 0.14%. Only Parnussus performed significantly above the S&P500, which was down by 15.9%,
Why haven’t they done better. Some of us have long believed that the problem with conventional SRI funds is that their definition of “socially responsible” is not nearly as rigorous as it could or should be.
Paul Hawken has been vocal in his critique of the SRI establishment, and since 2005 he has put his money where his mouth is. In a partnership with Baldwin Brothers, a Massachusetts-based investment firm, Hawken has overseen the Highwater Global Fund, a fund for qualified investors (i.e., the rich) that invests in companies “that have a clear sense of current global trends and future societal needs.” His results have been impressive, to say the least.
Since inception in the fall of 2005, Highwater is up by a total of 52.55%. During the three years ended in December (the same period cited above), Highwater is up by a total of 19.75%. This is, in part, because Hawken and the other fund managers are very picky about what stocks they hold. More than 90% of the FORTUNE 500 fail their screens.
{ 6 comments }
