More Mutual Funds Let Investors Put Their Money Where Their Hearts Are
UNITED States investors whose sentiments lie with Israel now have a way to support the country with their wallets, not just their hearts.
The Evanston, Ill.-based Israel Growth Fund, the first open-end mutual fund to invest in Israel, is one of a growing number of ``socially conscious'' funds in the US. Since 1990, the number of funds that invest in companies that further peace, promote the interests of women and minorities, respect the environment, or observe the dictates of Islam, has more than doubled to 29. One-half of the newcomers have opened for business just in the last 15 months, according to Laura Lallos at Morningstar Inc., a mutual fund analysis firm in Chicago.
The San Francisco-based Women's Equity Fund, for example, invests in companies that take steps to ``empower'' women. It eschews firms that run sexist advertising or that fail to treat female employees and consumers in a progressive way. After one year of operation, the fund has assets of about $1 million.
Investors who invest both for profit and a clear conscience generally trail the average gains of less-discriminating investors. But the lag is due more to mediocre management than to the fact that the funds strictly screen companies, Ms. Lallos says.
Socially conscious funds differ widely in the boundaries they set for investment. The Calvert and Working Assets fund groups both invest in companies that promote the interests of women and minorities and contribute generously to charity. The funds do not invest in firms that are insensitive to the environment or are connected to the military. Their aversion to securities tied to weaponry is so strong that they snub US treasuries.
``These funds have very, very hard-core lists of what they are looking for and what they are not looking for,'' Lallos says. ``They will appeal to people with liberal political beliefs.''
In contrast, the managers at the Dreyfus Third Century Fund do buy treasuries, affirming their belief that support for national defense is not necessarily irresponsible. Laidlaw Covenant also casts a broader net by investing in companies capitalized at more than $2.6 billion. Such companies are often excluded from stricter funds because of their less- exacting environmental standards compared with smaller firms.
On the other side of the spectrum, the Amana Mutual Funds Trust follows strict standards in screening companies. The Amana Growth Fund and Amana Income Fund invest according to the dictums of the Sharia, an Islamic holy book. To avoid the taint of usury, the funds snub all bonds, preferred stocks, and other fixed-return investments. They also avoid businesses involved in gambling, banking, and lending, and the production or sale of alcohol, pornography, and pork. But the managers of the Amana funds ultimately must defer to the North American Islamic Trust, which can be flexible in its application of the Sharia, says Phelps McIlvaine, director of the Saturna Capital Corporation, the funds' manager.
For instance, the funds do purchase shares in companies that sell alcohol as long as the sales represents a small fraction of their profits, Mr. McIlvaine says. In the past three years, Amana Income has averaged an annual return of 5.5 percent. Since its inception in February, Amana Growth has fallen by 6.4 percent.
Financial experts advise investors to put just a small portion of their assets into socially conscious funds because of the risks of investing in such narrow fields. The Israel Growth Fund, for example, has been whipsawed along with the Mishtanim, the most closely watched index of the Tel Aviv Stock Exchange. From its opening on Jan. 31 until the end of June, the fund plunged 37.7 percent. A scandal over market manipulation by leading money managers, high inflation, anxieties over negotiations for regional peace, plans to impose a capital gains tax, and interest rate hikes have pulled the market down.
The fund has partially recovered since the summer. And it is promising for several reasons: the immigration to Israel of thousands of skilled workers from the former Soviet Union, a government policy of deregulation and privatization, and expansion of trade, says fund president Merrill Weber.
Mr. Weber says Israeli companies will seize new opportunities to trade with countries that once supported the Arab boycott, including India, China, and the southern Asian countries of the former Soviet Union. But he cautions investors not to let their love for Israel run away with their wallets. ``We recommend that our investors put in no more than 10 percent of their investments in the fund because it is geographically localized and specialized in a particular industry [technology],'' he says.