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INVESTING IN WOMEN
By Anita Saville


An Excerpt From Purse Strings: Investment News for Women

Socially responsible investing (SRI) has come into its own. SRI assets under management are growing rapidly, along with SRI mutual funds. This is due, in part, to evidence that "do good" investments can earn competitive returns, which has helped boost interest in socially responsible investing. With this growth has come more attention to "women's" issues. A wide range of SRI funds now screen out companies with records of gender discrimination or sexual harassment. Some funds also look for firms with "women-friendly" initiatives - such as on-site childcare, flexible leave policies, or mentoring programs for women managers.

The SRI Explosion

Although SRI dates back to the late 1700s - when investors shunned companies involved with alcohol, gambling and tobacco - modern screening of investments for social purposes has its roots in the anti-war movement of the 1960s.

Interest in SRI has grown significantly since then. Assets in SRI accounts rose from $40 billion in 1984 to $639 billion in 1995 and nearly doubled from 1995 to 1997, according to the Social Investment Forum, an industry watchdog. In a 1997 survey, which identified some existing accounts for the first time, the Forum found that SRI assets had grown to $1.2 trillion - or about 9% of total U.S. assets under management. This growth in SRI assets is significantly stronger than growth for managed assets as a whole, the Forum says. Between 1995 and 1997, the number of SRI mutual funds rose from 55 to 144. (Data from a 1999 Forum survey is expected at the end of this year.)

The recent surge in SRI stems largely from stronger demand for tobacco-free portfolios, says Forum President Steve Schueth. Currently about 85% of all socially screened accounts exclude tobacco-related firms. A rise in stockholder activism has also contributed to SRI growth.

Responsible Returns

Compelling performances by SRI portfolios have helped, too. For many years, conventional wisdom held that returns from screened investments could not compete with returns from non-screened accounts. Recent results have proved such theories untrue:

  • Stocks of socially managed firms represented by the Domini Social Index and the Citizens Index earned stronger annualized returns than stocks in the Standard & Poor's 500 Index for the one- and three-year periods ended March 31, 1999. Both the Domini and Citizens indices have outpaced the S&P 500 since their inceptions in 1990 and 1995, respectively.

  • In 1998, 21 of the 41 mutual funds tracked by the Social Investment Forum that were three years or older earned one of two top ratings from Lipper Analytical Services, a mutual fund research firm, for their one- and three-year returns.

  • For the three years ending in 1998, 13 of the 41 funds earned one of two top ratings from Morningstar Inc., another research firm.

These performances should be "the last nail in the coffin of the tired myth that responsible investing means sacrificing returns," says the Forum's Schueth. "The data show conclusively that socially responsible funds can go toe-to toe with anyone."

Like other investment portfolios, SRI funds look for high-quality companies with strong financials. Some SRI experts suggest that companies with social consciences may even have special business advantages.

"Good employee and community relations, a diverse workforce, and protecting the environment are all things that can add to a company's strength," says Jon Hale, an analyst with Morningstar, "by giving [the company] more productive workers, community support, a good corporate image and less exposure to lawsuits."

Not all SRI funds are winners, of course. "Investors must look carefully for SRI funds that have track records competitive with their non-screened peers," says Hale.

Women's Screens Take Hold

To screens for "negatives" like involvement in tobacco, gambling, alcohol, military, or nuclear power, SRI funds have added "positive" screens for company policies that benefit women, minorities, and the environment. About 25% of SRI-screened assets meet various "fair employment" criteria, according to the Social Investment Forum. In addition to company labor practices, these criteria may address the gender and racial diversity of a firm's managers and board of directors. Other screens check for patterns of discrimination based on gender - as well as race, religion, disability, or sexual orientation.

The Domini Social Equity Fund, which invests in the 400 companies included in the Domini Index, takes its "women's screens" a step further. According to its prospectus, the fund seeks companies with "a record of purchasing from or investing in women- and minority-owned business," as well as firms "with strong employee benefit programs that address work/family concerns such as child care, elder care, and flextime." The fund gives special weight to companies whose chief executive officers are women or minorities and to firms that have made "notable progress" in promoting women and minorities to positions with "profit-and-loss" responsibilities.

In choosing its screens, the fund tries to reflect values that are currently important to a majority of socially responsible investors, says President Amy Domini. To this end, the fund updates its screens yearly based on a survey of SRI professionals. "Gender diversity was not one of the fund's screens when we started," Domini notes. "It became a core issue in 1994, when investors grew more interested this area."

The Women's Equity Mutual Fund includes screens for career development and training programs that benefit women employees and for company advertising, promotion, and marketing that present positive images of women. The fund avoids companies that promote "sexist stereotypes in the workplace," companies that "sell or promote products that adversely affect women," and companies that "demonstrate unwillingness to engage in a dialogue concerning women's issues."

"Women are the secret weapon of U.S. companies," says Women's Equity Mutual Fund President Linda Pei. Like firms in Japan, she says, U.S. companies can significantly improve employee loyalty and strengthen productivity by treating all workers fairly.

Choosing Women-Friendly Funds

How do you choose a women-friendly mutual fund? If the investment objectives meet your needs, and the long-term performance beats the average for its peers, take a look at the fund's prospectus. In the section on investment policies, you'll find a list of the fund's social screens. Some funds give more detailed descriptions in separate brochures. You can also check the fund's web site or, in the case of smaller funds, speak with the portfolio manager. By reading the latest shareholder report, you can see what the fund actually owns.

Don't be surprised if a fund invests in companies with less-than-perfect records on women's concerns, however.

"No SRI fund has drop-dead standards for women's issues," says Amy Domini. "Some companies can be weak on one issue and strong on several others. You have to weigh many factors."

Anita Saville is the publisher of Purse Strings, an investment newsletter for women

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