IndexFunds.com Staff

Being Socially Responsible All The Rage

Assets in socially responsible funds have continued to rise dramatically. According to a new report by the Social Investment Forum, assets under management in socially screened portfolios have topped $2 trillion. In the past two years, socially responsible funds have enjoyed a 36 percent growth rate, over 1.5 times the 22 percent rise reported for all investment assets under professional management in the United States during the same two-year period.

The report found that total assets under management in portfolios screened for socially concerned investors rose from $1.49 trillion in 1999 to $2.03 trillion in 2001. The portfolios include socially screened mutual funds and separate accounts managed for socially conscious institutions and individual investors. According to the 2001 Nelson's Directory of Investment Managers, there is a total of $19.9 trillion in professionally managed investment assets of all types in the United States, compared to $16.3 trillion in 1999.

The strong performance of the funds helped spur the boom. All 6 of the socially responsible index funds listed on Indexfunds.com show 1-year returns in the neighborhood of -20%, besting the S&P 500 by about 5%. Over 3, 5 and 10 year periods, the performance of the SRI funds has about equaled that of the S&P 500.

Steve Schueth, spokesperson for the Social Investment Forum and president of First Affirmative Financial Network said: "This data would be remarkable at any point in time, but it is particularly striking when you realize that we had bearish markets for most of the time period covered by this study. Defying conventional thinking, social investing has grown considerably over the past two years. This speaks volumes about the staying power of this industry and about the commitment of socially conscious investors to the dual objectives of making money and making a difference."

Additional findings of the Social Investment Forum's 2001 Report on Socially Responsible Investing Trends in the United States include:

• Over $2.3 trillion resides in professionally managed portfolios utilizing one or more of the three strategies that together define socially responsible investing in the U.S. - screening, shareholder advocacy, and/or community investing. By this broader measurement, socially and environmentally responsible investing in the United States grew 8 percent from $2.16 trillion in 1999 to $2.34 trillion in 2001.

• Nearly one out of eight dollars under professional management in the United States today is involved in socially responsible investing. The $2.34 trillion being managed by major investing institutions (including pension funds, mutual fund families, foundations, religious organizations and community development financial institutions) for socially concerned investors accounts for nearly 12 percent of the total $19.9 trillion in investment assets under management in the U.S.

• Assets in separate accounts managed for institutional clients and individual investors grew by nearly 40 percent from 1999 to 2001. These socially screened private portfolios rose to $1.87 trillion in 2001 from $1.343 billion in 1999, from $433 billion in 1997, and up from just $150 billion in 1995.

• There are now 230 mutual funds in the United States that incorporate social screening into the investment process. In 1999, 168 socially screened mutual funds were identified, while 230 such funds were recorded in 2001. (This number does not include multiple share classes of the same fund.) Due to the sustained market downturn, the assets of socially screened mutual funds were flat: $153 billion in 2001 and $154 billion in 1999.

• Tobacco is the most widely screened group of stocks in screened portfolios. Other broadly utilized screens include weapons; human rights; employment/equality; alcohol; the environment; and gambling.

• Assets are up for socially aware investors using both screening and shareholder advocacy to encourage greater corporate responsibility. Assets in portfolios utilizing both strategies grew from $265 billion in 1999 to $601 billion in 2001. Most of this substantial increase was due to the fast-rising number of major institutions that are both screening for (or divesting themselves of) tobacco stocks in addition to undertaking some form of shareholder activism.

• More than $900 billion in investment assets are leveraged through shareholder advocacy. Institutions and mutual fund families used the power of their $906 billion stake in corporate America to sponsor or co-sponsor proxy resolutions on social issues. Despite the extended slump in the stock market, the $906 billion was nearly equal to the $922 billion in total social shareholder activism reported in 1999.

• Community investing grew by 41 percent between 1999 and 2001. Assets held and invested locally by community development financial institutions (CDFIs) based in the United States totaled $7.6 billion in 2001, up from $5.4 billion in 1999.

For more information about socially responsible investing, visit http://www.socialinvest.org/