June 6: What are SRI funds?

by David Jenyns on June 6, 2007

SRI stands for Socially Responsible Investing and SRI funds and indexes strive to be just that. Of course, Socially Responsible means different things to different people and to different funds and index managers as well. If you are interested in investing in Socially Responsible Fund’s make sure you check the fund or indexes criteria to make sure they are a good match for your own.

Some, SRI’s for instance, will not include any arms manufacturers, but might include tobacco or alcohol industries. Other funds will exclude any stock whose company might be involved in animal testing. Some funds put more emphasis on how a company treats its employees. This process of inclusion or exclusion is called “screening”, and each fund has its own screening criteria. Knowing the screening criteria can be a big help in deciding which fund is right for your style of investment.

Some of the larger and best known socially responsible funds and indexes are:

1. Pax world – Pax worlds funds were among the first, if not the first socially responsible Mutual funds. Luther Tyson and Jack Corbett Launched the Pax World fund, on August 10, 1971, the fund was launched with $101,000 in assets and created the first broadly diversified, publicly available mutual fund to use social as well as financial criteria in its investment decisions. Since then over 175 funds have followed in their footsteps. In 1999 in the United States alone there was over 2 trillion dollars invested while following socially responsible guidelines. Pax World family of funds seeks not to invest in companies that make defense or weapons-related products or that make money from the manufacture of tobacco, alcohol, or gambling products. They also make an effort to reward socially responsible behavior by investing in companies treat the environment and their employees well. Even if a socially responsible investor does not invest in this fund, a look at their holdings gives a good clue as to which companies are socially responsible according to this set of criteria. Pax world currently has four funds to choose from, including a money market and a growth fund.

2. Domini Social investments- The Domini Social Equity Fund is one of the oldest and best-known Socially Responsible Index funds. It tracks the Domini 400 Social Index (DSI) which is an index comprised of companies that pass multiple broad-based social or ethical screens. It was launched in June of 1991, and boasts higher returns than the S&P 500 index since the fund’s inception.

3. FTSE4good- The FTSE4Good series, was first announced in March 2001, and was launched in July 2001. It consists of four tradable indexes and four benchmark indexes. A tradable index is an index which allows investors to trade and invest in companies covered by the benchmark index.

The completion of the series extended the availability of information on Socially Responsible Investments to cover 90 percent of the world’s financial markets. According to FTSE The FTSE4Good index series was created to provide SRI Investors with an independent and accurate tool to measure the performance of companies meeting international CSR standards. FTSE for good and the Dow Jones Sustainability Index are the most commonly known SRI indexes.

4. Dow Jones Sustainability Group Indexes – Since the beginning of 1999 the Dow Jones Sustainability Group Indexes has been screening companies according to stances on economic, environmental and social developments. They are based on the cooperation of Dow Jones Indexes, STOXX Limited and SAM .

These four funds and indexes are the most watched of the socially responsible investment funds. They provide an excellent background for people new to Socially Responsible Investment and can provide a good view of the state of the socially responsible markets world wide.

They are However not the only funds by a long shot. There are currently over 175 Socially Responsible Investment funds on the market and there number is growing every day. With new rules in Europe requiring that funds disclose their stance on socially responsible Investment to their shareholders, we can likely see a lot more SRI funds in the future.

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