Socially responsible investing

Putting your money where your values are By Tim Suffish CFA, CPA Vice President, St. Germain Investments Although still a small portion of the investment world, socially responsible investing (SRI) has been a strategy gaining favor with investors. While religious institutions have been investing for the greater good for hundreds of years, the movement is generally believed to have started for the individual investor in the 1970s during the Vietnam War. The rising popularity and availability of mutual funds during the 1980s brought specialized strategies such as SRI to the masses with the creation of hundreds of funds dedicated to various flavors of SRI. An SRI primer As the name implies, SRI combines the desire to "do good" with a profit motive. Interpreting the profit motive side of the equation is easy: we're in this to make money! Doing good, however, is a very subjective and individual matter. SRI strategies are diverse and need careful examination to be sure that the socially responsible "filter" is performing an appropriate stock selection that is consistent with your social beliefs. Generally speaking, there are a handful of "screens" that the SRI managers will employ to filter out companies that are considered to be SRI offenders, and include only good corporate citizens. They are: OUT Alcohol, tobacco, firearms Weapons and military Gambling Poor environmental record IN Workplace diversity "Green" business Environmentally responsible policies The pros and cons Although SRI has been a viable investment strategy for hundreds of years, it is not without criticism. Many individuals and most of the institutional investment world consider SRI to be restrictive and even detrimental to the goal of maximizing profit (in an investment portfolio). Critics would say that it is better to "do good" with your charitable dollars than your investment dollars. A review of the screens listed above shows us that several of the industries that are screened out of most SRI portfolios are the typical "recession proof" industries that hold up well in times of market turbulence. Companies involved in the manufacture of alcohol and tobacco, for example, are classified as consumer staples by the investment world. By definition, these types of companies will perform in a very predictable manner, with slow steady growth even in times of economic uncertainty. For another example, gambling is often considered to be a business that thrives during recession. Critics of SRI will rightfully point out that restricting these industries from a portfolio will potentially limit the ability of the manager to protect a portfolio at the time that it is most needed. A growing investment choice The bottom line with SRI is that it is a small but growing (now approximately 5 percent of the mutual fund universe) part of the investment world that provides a choice for investors that wish to do a little more than just make money with their investments. Column provided to PRIME by:St. Germain Investment Management; 1500 Main Street, Springfield, MA; Phone is 413-733-5111 or 1-800443-7624; web site:www.dgstgermain.com www.dgstgermain.com