My Sunday morning newspaper headline proclaims that “The Gun Debate Regains Sense of Crisis” and social media is filled with discussion – some thoughtful, some insipid – on what direction the country should take. One friend and MrFireStation reader is taking an interesting tack on driving the change he would like to see: eliminating any investments in his portfolio that include gun companies.
Regardless of your opinion on the complexities and Constitutional implications of gun control in the country, I think we should all support ‘voting with our dollars’ for the change we would like to see in the world. This can include the products we do (and don’t) buy at the store, and it can be extended to what companies we are invested in.
Socially responsible investing (SRI) has been around for a long time. Pax World Funds is credited as being the first socially responsible mutual fund in 1971. The approach is gaining in traction with $6.4B invested in socially responsible mutual funds and ETFs last year – up +10% versus the prior year according to Morningstar. Goldman Sachs, JP Morgan and Blackrock have all made big acquisitions in the SRI space or expanded offerings of their own in recent years.
Each SRI fund is structured a little differently, but in general, they focus on companies whose mission and business is focused on societal & environmental benefits as much as shareholder return. Many expressly avoid investments in companies focused on tobacco, alcohol, firearms, gambling, abortion, pornography, fossil fuels, and other things that fund managers and their investors believe that are not socially responsible.
Most studies of SRIs that I find online suggest that their returns are slightly below comparable funds that invest in all businesses. This Wall Street Journal ARTICLE from 2015 has a chart that makes the comparisons. I imagine that since these are actively-managed funds, they carry higher fees that their competitors (that include low cost index funds). For many people, this potential trade off in return is well worth it – and of course historical performance is no indicator of future returns.
For our part, we have not sought out any SRI funds for our portfolio. When it comes to equities, we are highly positioned in S&P 500 index funds, which I do not believe include the major firearms manufacturers. While SRIs are said to hold as much as 20% of the total value of the stock market, I’m not convinced of the efficacy of their impact on driving societal change. Additionally, based on what I’ve seen, I don’t think any of the major funds exactly reflect my view of socially responsible. I’ll look into it some more this year when we sit down with our financial advisor.
Have you done any socially responsible investing? In what other ways do you ‘vote with your dollars’ on principal?
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