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| Opportunities & Exposures: Investing |
A Separate Peace
Penny Knuff
10/01/2005
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For years, affluent investors aspiring to lay out their capital according to
their values have sought socially responsible mutual funds. But these funds
often limit investors’ options to a limited spectrum of concerns—abortion, adult
entertainment, alcohol, tobacco—that are based on someone else’s definition of
social responsibility.
Today, some of these forward-thinking investors are
able to pinpoint investments that both support their particular causes and
maximize their returns. That is the dual promise of using separate accounts in
individual, tailored portfolios as vehicles for socially responsible investing.
Financial advisors now have new sets of screening tools to identify and select
specific companies that meet an individual investor’s definition of socially
responsible investing. Investors can now communicate their preferences and
construct a portfolio to reflect their choices.
One of our clients is a
midwife with $11 million in net worth. She is passionate about holistic medicine
and is wary of investing in pharmaceuticals. She is similarly averse to
investing in fast food and tobacco companies.
A few years ago, it would have
been difficult for her to develop a portfolio reflecting her specific social
goals because most financial advisors would not have had the ability to parse
the companies that met her criteria. Her likely option would have been to choose
a socially responsible mutual fund. But she has been able to create a customized
portfolio of individual securities by working with her financial advisor to
choose categories of companies to favor or avoid. Her advisor uses Web-based
software to tap into databases maintained by third-party screening services that
parse thousands of companies.
The socially responsible investing sector is
seeing a slow but steady increase in these types of services. In its most recent
report on industry trends, the Social Investment Forum noted that total assets
in socially screened separate accounts grew by 7 percent between 2001 and 2003.
Dating back to 1995, when this approach was a fledgling strategy, assets held in
separate accounts in the U.S. totaled $150 billion. Eight years later, that
figure was nearly $2 trillion.
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