Return on the Oldest Social Index Over the Past 5 Years: 47%

By Karl Cates and Kevin Sullivan | April 30, 2012
  • What's Happening

    What's Happening

    Doing well and doing good don't always go hand in hand. Yet some investors try to achieve both by investing in "socially responsible investing" (SRI) funds. The goal is to support companies that are environmentally friendly or aren't involved in vices that include smoking, drinking, gambling and so forth. That can rule out owning stock in armament makers -- four of the U.K.'s biggest banks and insurers recently swore off doing business with companies that make land mines, for instance. SRI ideals can include good corporate governance, which is why News Corp. executives have been under pressure from some SRI stockholders over their role in the company's phone-hacking scandal.

    Photograph by Adriano Machado/Bloomberg

  • Why It Matters

    Why It Matters

    While a well-managed SRI fund can deliver solid returns, such funds don't always keep up with those that are less selective. Compare the performance over the past 10 years of the S&P 500 Index versus the MSCI KLD 400 Social Index, the oldest socially responsible investing index. It is described by MSCI as being designed "to provide exposure to U.S. companies that have positive environmental, social and governance characteristics." According to data compiled by Bloomberg, the KLD 400 has returned 47 percent since 2002 -- not too shabby. Yet that isn't quite as good as the S&P 500, which has returned 49 percent.

    Graphic by Charlos Gary/Bloomberg

  • What It Means for Your Portfolio

    What It Means for Your Portfolio

    SRI guidelines preclude holding stock in certain big, highly profitable companies. Among the top 20 members of the S&P 500 are at least three that are generally off-limits: Exxon Mobil, Chevron and Phillip Morris International. The effect over the long haul may be minor, however. Since 1990, the KLD 400 has outperformed the S&P 500, returning 643 percent to the S&P's 548 percent. (That's 9.6 percent versus 8.9 percent annually.) Since the market crash of 2009, the S&P has beaten the KLD 400, if only by a hair -- 23.8 percent to 23.4 percent annually. Ultimately, investing with an eye toward social responsibility may have more effect on your karma than your portfolio.

    Photograph by Daniel Acker/Bloomberg

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