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July, 2014


Is it possible to be a good investor and yet true to one's principles? This is the challenge of socially responsible investing (SRI), defined as: financial endeavors that seek to enhance both profit and social values, for instance investing in green energy, non-defense related, anti-tobacco businesses that also treat their employees well. Corporate social responsibility is abbreviated CSR.

The trouble is that by restricting one's investment options one can also limit the potential for outsized gains, the kind that might lift average returns above the mediocre. It is one reason that social values oriented mutual funds often have a hard time even keeping up with the returns of the market indexes.

However, it may be possible to beat the market and still stick to one's value preference guns. Awhile back (with company statistics effective 6/16/2005) we examined this topic (Buying Responsible Leadership). And it seemed interesting to consider how things appear today. It was noted then that ten corporations were especially highly ranked for their corporate social responsibility. The intervening years included the near financial meltdown, from late 2008 through early 2009, and the Great Recession that followed for a period afterward. Let's see how those ten CSR companies have done in the roughly nine years since, from 6/16/2005 through 7/18/2014 (the time of writing): ranging from the highest performing CSR company investment, Ecolab, up 233.33%, through the lowest, Whole Foods Market, down 38.84%, the average price change of those ten was an increase of 62.34%. With dividends included, the total return of the group (not counting commissions) would have been about 80%. The S&P 500 Index, with dividends included, was up 63.34% between 6/16/2005 and the close of trading on 7/18/2014. So, even against the Great Recession headwind, our CSR companies did alright overall, not great, but they held their own. (Note that The Timberland Company [TBL] was bought out and taken private in 2011, so its gains [of just 7.69%] reflect only the price change from 6/16/2005 until then.)

Ten companies recently with the best global reputations for corporate social responsibility (and their price performances since 6/16/2005) are shown in the table:

CLColgate Palmolive496940.82%2.10%
DDAIFDaimler AG4189117.07%3.36%
DISWalt Disney2786218.52%1.01%
NSRGYNestle S.A. ADS667716.67%2.64%
VLKAYVolkswagen AG ADS950455.56%1.63%
Average +116.40%1.93%

In the 2005 piece I had also mentioned Ariel Fund (ARGFX), respected for its efforts to invest based on social responsibility guidelines. Unfortunately, as noted above, it is rough going for such specialized funds. True to the norm, Ariel failed to match, much less beat, the benchmark S&P 500 Index: up 47.17% (from 5/31/05 through 6/30/14) vs. the S&P 500 Index's gains of 64.43% (in the same period).

However, some folks are not so interested in big gains as they are in making money on their investments by means of financial vehicles they can really respect. Regular dollar-cost-average buying of shares in even socially responsibility funds can be rewarding over the long-term. Five mutual funds currently with both good social responsibility and performance credentials are: AMANX; CSXAX; PARNX; PRBLX; and VFTSX.

Among these, I currently prefer Amana Income Fund (AMANX) (recent price $46.12). It has a ten-year average annual return of 11.57%, a 51% better annual gain than the low-cost Vanguard S&P 500 Index Fund, which had a record of 7.66% a year over the past decade. AMANX is a large-cap. value fund that seeks to generate returns through performance plus income. Oddly enough Amana Income Fund has a simple, but for our traditions culturally counter-intuitive set of social responsibility criteria: it invests only in companies consistent with Islamic Law, i.e. those not acquiring more than 5% of their earnings from liquor, gambling, banking, or pornography. AMANX also avoids highly leveraged companies.

All things considered, it is possible to have social responsibility ideals and yet do reasonably well in the stock market. One just needs to clarify one's values and then, based on their parameters, carefully choose among the corporations or financial instruments available in which to invest.


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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