April 8, 2010
But advisors rarely mention socially responsible investing (SRI) to them. That’s one of the findings of a recent study by Allianz Global Investors. It may just be that advisors are mostly focused on the investment merits of various items and assume that’s what the only thing there clients are concerned about as well. Advisors certainly don’t want to offend clients by pushing SRI on them, so perhaps they just steer clear of the whole issue. It does seem, however, that SRI is appealing to more clients than you might guess.
In that regard, most advisors are probably not even aware that we run a Systematic Relative Strength SRI Core equity product. The social screening is done for us by KLD Research and Analytics. We simply apply our core equity process to the screened universe. The portfolio metrics are almost identical to the metrics for our (much more popular) non-SRI Core portfolio. Maybe more clients would be interested in it if they knew it was available.
November 11, 2009
Robert Keane of Investment Advisor has a nice piece on the history and evolution of socially-responsible investing. As he points out, over the years SRI investing has shifted more toward a focus on positive qualitative criteria. Nowadays, most firms use positive scores on environmental, social, and corporate governance to form the basis of their screens.
Perhaps somewhat under the radar, one member of Dorsey, Wright’s family of Systematic Relative Strength accounts is an SRI account screened for us by KLD Research and Analytics. If you have clients with an interest, you can request more information here.
October 22, 2009
There is an unspoken concern that many investors have about Socially Responsible Investing (SRI). In short, the concern is that if you invest in socially responsible companies, your investments will not do very well, or at least not as well as they would have otherwise. I was reminded of this recently while reading an article by Stephen Mauzy, CFA of The Motley Fool. While I recognize that the article was meant to be humorous, (not that I find the idea of mixing firearms and alcohol to be funny) it still perpetuates the concern that there will be a performance penalty with SRI.
When we put together an SRI account, we took a different approach. We knew that our core systematic relative strength strategy had historically outperformed. The challege was to adapt that same process in an SRI account.
We engaged KLD Research & Analytics to screen our universe of domestic mid- and large-cap stocks for environmental, social, and corporate governance factors. KLD goes about their screening in an interesting way. Rather than taking the typical approach of throwing out certain companies on an absolute basis because of their involvement with some perceived negative, KLD groups companies by industry and then boots the companies that score the worst on their environmental, social, and corporate governance scales. It allows the investment universe to have broad industry representation, which is not necessarily typical of other SRI screening processes. The advantage for the manager is that we can get exposure to every industry, so that we can potentially benefit when that industry is in favor.
Our next step was to apply the exact same core systematic relative strength process to the screened SRI universe as we do to our standard mid- and large-cap universe. Lo and behold, the long-term performance is virtually identical between the two universes! Same process, same results, even though one universe has low-scoring SRI companies removed. It turns out that there is no functional difference between our regular core account and our SRI core account. As a result, clients need not have any trepidation about a performance penalty in SRI. You can do well even when doing good.