Sound investment can reflect one's values

  • Article by: CHRIS FARRELL , Star Tribune
  • Updated: March 16, 2008 - 12:35 PM
Q I’m interested in investing in renewable/sustainable energy sources such as solar, wind power, etc. A fund available through Guinness has done well but has a 2 percent fee. Any recommendations?

A You’re part of a growth business. The latest report from the trade group Social Investment Forum pegs broadly defined total industry assets at $2.71 trillion. That accounts for 11 percent of the $25.1 trillion in U.S. assets under management. Most socially responsible money is managed for institutional investors and high-net-worth individuals. But socially responsible mutual funds and exchange traded funds boasted $201.8 billion in 260 funds last year.

The biggest rap against the movement is the belief that marrying personal values to an investment portfolio cuts into returns. In other words, doing good and making money don’t mix. I don’t agree.  Yet a number of studies suggest there’s little difference between pooling money to make money and pooling money to make money and express values.

Meir Statman, a finance economist at Santa Clara University, has concluded from his studies that  risk-adjusted returns on socially conscious index funds and actively managed ones are roughly comparable to the Standard & Poor’s 500 index and to their conventional, actively managed peers, respectively.

As of writing this column, the Guinness Atkinson Alternative Energy Fund’s year-to-date return was down 19.1 percent. Its one-year return is 5.64 percent compared with an average of 33.53 percent for its peer group. Its expense ratio is 1.98 percent — very high. Morningstar says fees on green funds range between 1.25 percent and 1.98 percent.

For most people, I prefer broad-based equity index funds that cover a range of industries and charge low fees. Sector funds tend to be volatile and high cost. Still, once you’ve created a broadly diversified portfolio and you then want to place a bet on a sector with a small percentage of your portfolio by all means go ahead. For those interested in doing more research about socially responsible investing two good websites are www.socialinvest.org  and www.socialfunds.com.

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Chris Farrell is economics editor for American Public Media’s weekly “Marketplace Money” show on public radio. He lives in St. Paul. Send questions to cfarrell@mpr.org and put “Your Money” in the subject line.
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