Companies that make weapons, ammunitions and war-related anything aren't the kinds of picks you'll find in the portfolios of socially responsible mutual funds. Socially responsible investing, after all, means side-stepping all "sin" stocks like those that manufacture alcohol, bombers or cigarettes. But in war times like these, won't socially responsible funds miss the performance boat? Not necessarily.
Socially responsible funds come a variety of different fund families offering funds in all sizes and flavors from money market mutual funds to index funds. And while each fund is different, managed separately and uses a different set of criteria and social screens to find companies for their respective portfolios, assuming most won't perform well in times of war could be mistaken.
Take the MMA Praxis Core Stock fund, (219-533-9511), for instance. Managed with the tenets of the Mennonite Church in mind, this large-blend core fund's year-to-date performance through October 12, was down 12.41 percent, according to Morningstar. That's about 5 percentage points better than its benchmark the S & P 500; it was down 17.32 percent.
According to Mark Regier, the stewardship investing services manager for MMA, it's their church's core values that guide the investment choices in all of their five different mutual funds. Those values include the respect and dignity of all people; building a world at peace and free from violence; demonstrating a concern for social justice in a global society; exhibiting responsible management practices; support and involvement of communities; and practicing environmental stewardship.
So, the reason you won't find any military or defense contractor companies in any of their funds isn't because there aren't any good defense companies around. It's because of Mennonite's beliefs.
Chad Horning is co-portfolio manager of the MMA Praxis Core Stock fund (MMPGX) along with John Nussbaum. Here's more about the fund from Horning:
Q: What kinds of companies won't you invest in?
Horning: In very general terms, we steer away from anybody who has a defense contract or any sort of weapons contract. Otherwise, we try to avoid companies that do more than five percent of their business with the military even if it might be non-military related; we don't buy manufacturers of firearms or alcohol; and do our best to find what we think are good companies in terms of their environmental record.
Q: Have people been redeeming shares of your fund since the Sept. 11 tragedy?
Horning: We've had net inflows into our funds. So yes there has been some money going out but more coming in.
Not investing in defense stocks is pretty important for us as an organization. But when you think about it, at least now, defense stocks are just not that large a portion of the US market. Financial stocks, technology stocks and health care stocks are still a huge chuck of the S & P 500. So the way it stands now, we're not missing a lot.
Q: Tell me more about that?
Horning: There is an aerospace defense sort of sub index in the S & P 500. The companies in it are Boeing, United Technologies, Lockheed Martin, General Dynamics, Northrop Grumman; Rockwell Intl.; Rockwell Collins; and Goodrich. Add the weighting of those positions up and you'll come with something around one percent.
Intuitively, I say as a portfolio manager it would be great to have a one percent position in something that I have confidence in and that could go up. But in our portfolio, it isn't that big of a deal. The bigger deal is what happens to the economy overall and we generally think that the fiscal and monetary stimulus that's happened will kick in some time next year.
Our portfolio is meant to be a core stock funds and we're not making big timing bets. So we'll balance the portfolio between the defensive stocks, which we hope will hold up well regardless of whether or not the economy screams along, and some cyclical stocks that once things do turn around we'll get some benefits from. Those are the kinds of things that are going to effect performance more than the fact that we don't own defense stocks.
Keep in mind that not all socially responsible funds are created equally. So do your homework before investing. To learn more about socially responsible funds, you'll find plenty of useful information at : www.socialfunds.com .
Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.
To read more articles, please visit the column archive.