Socially responsible investing has increasingly become hot over the past five years with much of that growth fueled by investors' desires to "marry the utilitarian and expressive characteristics of their investments,'' according to
McFarland is also vice president of Portfolio Strategy at Loring Ward, a
Lipper data indicates that the amount of assets held in SRI mutual funds over the past five years has grown from
A Passive Approach
Unfortunately, McFarland noted that it is difficult to find sufficient diversification within the universe of such mutual funds, some times referred to as socially responsible investing funds.
His study of the 136 mutual funds within the
Also, net operating expense ratios and fund turnover are high for socially-responsible strategies compared to an index or asset class strategy.
The study revealed that the average net expense ratio for all socially-oriented funds in the
The average turnover for a mutual fund investing in socially responsible companies is 67.80% per year, compared to 33.64% for the average index fund.
"Active management is going to underperform because of their higher fees and how lucky or unlucky their portfolios are is going to help/hurt their returns," said McFarland.
Loring Ward's passive SRI Global Series Portfolio Defensive Series, which invest in the Dimensional Fund Advisors US Social Core Equity 2 Fund and the
The Active Approach
Among active SRI funds, the
Why? Because index-hugging funds tend to stick pretty close to their indices, thus taking away the risks and rewards that stem from active management. Also, active managers' relatively smaller portfolios and higher turnover rates versus their passive counterparts mean that they're more nimble during times of volatility.
And as far as fees are concerned, Strauss said the fund is not expensive nor is it cheap. "No one is complaining to us about pricing."
However, not all active funds sport big price tags. For example, the
In his fourth quarter 2011 outlook, portfolio manager and founder
Dodson doesn't plan on making major changes to the portfolio. "When the recovery strengthens, the portfolio should do very well," Dodson said.
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