22 KIPLINGER’S PERSONAL FINANCE^ 09/2017
AHEADISTOCKPHOTO.COM(Investments in boldface are those I
recommend. Prices are as of June 30,
as are returns.)
A study by TIAA Global Asset Man-
agement looked at five popular SRI in-
dexes over the 10-year period that ended
in December 2015 and found that, on
average, they lagged the S&P 500 by 0.3
percentage point per year. Only one (Cal-
vert U.S. Large-Cap Core Responsible)
beat the S&P, and it did so by just 0.2
point per year. Volatility was almost pre-
cisely the same as that of the S&P 500.
None of this is surprising. Eliminating
“evil” does not limit choices much. After
all, how many publicly traded pornogra-
phy companies are there? As for “good”
stocks, the list is dominated by the usual suspects. A popu-
lar holding in nearly all SRI portfolios is MICROSOFT (MSFT,
$69), typically ranking first (even in Pax Ellevate, the wom-
en’s fund). Often seen in the top holdings are Google par-
ent Alphabet (GOOGL, $930), JOHNSON & JOHNSON (JNJ, $132)
and Procter & Gamble (PG, $87). Rarely found in SRI funds
because of controversial labor practices are Apple (AAPL,
$144), Amazon.com (AMZN, $968) and Nike (NKE, $59).
Also usually excluded are such alleged miscreants as
tobacco, oil and casinos.
The best SRI choice is PARNASSUS FUND (PARNX), the oldest
fund in a family founded by Jerry Dodson in 1984 and
recently explored in depth by Kiplinger’s senior editor
Anne Kates Smith (see “Investing With a Conscience,”
July). Parnassus returned an annualized 16.7% over
the past five years, ranking in the top 6% of its category
(funds that focus on large-cap growth stocks). The fund,
which charges 0.86% annually, has the usual exclusions
and is ESG-sensitive, but its top holdings
resemble those of few other SRI funds.
Among them are ALLERGAN (AGN, $243), an
Ireland-based drugmaker, as well as
communi cations-equipment supplier
Motorola Solutions (MSI, $87) and insurer
PROGRESSIVE (PGR, $44). Dodson happens to
be a terrific stock picker.
In the end, I am not an SRI enthusiast.
I lean toward the view of Milton Friedman,
the late Nobel Prize-winning economist,
who wrote a famous New York Times arti-
cle in 1970 headlined, “The Social Respon-
sibility of Business Is to Increase Its Profits.”
Friedman argued that companies should
stick to their knitting, follow the law and
distribute earnings to shareholders, who
can make their own choices about how to use the money
for what they see as the greater good.
I am also loath to outsource my own social conscience
to a fund manager or an index compiler. Few ESG indexes
have principles that match my own. For example, I think
energy companies have contributed to the general welfare
by investing billions to extract relatively clean natural gas
through fracking. And I have no problem with casinos.
The vagueness of SRI buzzwords is also troubling.
I can understand categories such as small caps, Asia stocks
or high-yield bonds. But what does sustainability actually
mean? Barron’s last year came up with a list of the “top
200 sustainable mutual funds,” and, of the 50 that beat
the S&P 500, 49 do not even use the term themselves.
The article quoted Jack Murphy, of Levin Capital Strate-
gies, who comanages the top performer on Barron’s list,
Transamerica Large Cap Value A (TWQAX): “Sustain-
ability? What’s that?”
Finally, by charging high fees, too many
socially responsible funds aren’t responsible
to investors. Eventide Gilead N (ETGLX),
which is geared toward religious investors,
attracted broad attention for whipping the
S&P 500 by nearly 21 percentage points in
2013, but it has an excessive expense ratio of
1.39%. Calvert Global Water A has expenses
of 1.63%, not to mention a 4.75% sales charge.
Exchange-traded iShares MSCI KLD 400
Social (DSI, $89) charges 0.50%—too much
for an index fund. The best way to go: Buy
one of the Parnassus funds or a low-fee
SRI index fund, such as Vanguard’s. Or just
confine your socially conscious investing to
individual stocks. ■The best SRI choice
is Parnassus Fund.
It’s the oldest
fund in a family
founded in 1984 by
Jerry Dodson, who
happens to be a
terrific stock picker.
JAMES K. GLASSMAN, A VISITING FELLOW AT THE AMERICAN ENTERPRISE
INSTITUTE, IS THE AUTHOR, MOST RECENTLY, OF SAFETY NET: THE
STRATEGY FOR DE-RISKING YOUR INVESTMENTS IN A TIME OF
TURBULENCE. OF STOCKS CITED HERE, HE OWNS AMAZON.COM.■ MAKING MONEY
WHILE TAKING INTO
ACCOUNT ETHICAL
CONSIDERATIONS CAN BE
A TRICKY BALANCING ACT.