Socially Responsible Indexes
Low-cost and diversification are the key to a successful portfolio these days. I've said many times in this space that active management is not worth the money you pay for it. Indexing is the way to go if you want to capture the most that the market has to offer. The most popular indexes, however, do not have a social component. The indexes mentioned below do.
- Calvert Social Index (Symbol: CSXAX, CSXBX, CSXCX depending on which class you own). I appreciate all that Calvert has done for the social investing field. The Calvert Social Index is a worthwhile benchmark. The fund, however, is exceedingly expensive for an index fund. All the performance criteria are quoted before fees. They have three classes of funds, depending on from whom you buy the fund. If you buy from an adviser, there is a max up-front sales charge of 4.75 percent which is patently ridiculous for an index fund.
- Citizens 300 Fund (Symbol: CFCDX). You can see which companies are in this portfolio by clicking here. The fund charges no load, but the expense ratio of .9 percent is still very rich for an index fund. Environmentalism and diversity are their social criteria.
- KLD Select Social Index (Symbol: KLD). This is an exchange traded fund, based on the widely used KLD benchmark. See this post for pros and cons of ETF investing. The ETF is a product of Barclay's iShares, and carries an expense ratio of .50, which is still pretty rich for an ETF. Quoting from KLD's own description of how they determine index constituents:
- "The scores are derived from the ratings awarded to a company in its social and environmental profile. To come up with a score, the concerns are subtracted from the strengths and are normalized to give each issue area the same weight. KLD rates companies in 7 issue areas: community, corporate governance, diversity, employee relations, environment, product, and human rights. Finally to determine the company's weight in the Index, KLD applies an optimization process using the company's score, market cap, and industry. The optimization process allows for the Index to approximate the same industry weights as the Russell 1000 (upon which it is based), while controlling risk."
- Mennonite Mutual Aid (Symbol: MVIAX, MVIBX, depending on which class). A useful PDF describing this fund can be obtained by clicking here. MMA has the best-performing funds of the last couple of years. However, there are 2 glaring problems with this fund. First, the fund charges a maximum of 4% sales load. Loads are not appropriate in index investing. Second, the fund itself varies substantially from its benchmark index. It has had variance of 20 percent or more (both up and down) versus the S&P Barra Value benchmark.
- CREF Social Index - A useful fund fact sheet can be obtained here. The fund has a reasonable expense ratio (.37%) and the fund can be purchased without a load. The index trails the S&P 500 by a small percentage.
- WilderHill Clean Energy Index (Symbol: PBW) - This is also an ETF, not a mutual fund. Expenses are capped at .6%, which is on the upper end of acceptable for an ETF. The components can be obtained from the Amex web site.