Q&A: Socially Responsible--and Beating the S&P
Any investment manager who is making money when most aren't deserves attention. That's even more true for Daniel W. Boone III, portfolio manager of the $443 million Calvert Social Investment Equity fund, whose companies not only have to meet all the high financial standards but socially responsible ones, too. The fund earned an average total return of 6.98% a year over the past three years (through Apr. 26), according to Morningstar. During that period, the Standard & Poor's 500-stock index lost an average 6.24% a year.
Boone, 57--yes, he's named for his famous frontiersman ancestor--is a managing partner at Atlanta Capital Management in Atlanta. He has run the fund since September, 1998. Personal Finance Editor Susan Scherreik spoke with him about his investing philosophy.
Q: How do you pick stocks within the constraints of socially responsible screening?
A: We look for large companies with above-average growth prospects in out-of-favor sectors. We avoid IPOs and other companies too young to have gone through a couple of economic cycles. But we don't buy a stock unless Calvert's analysts give it a pass.
Q: What kind of companies are screened out?
A: Companies that are polluters, discriminate against employees, hire sweatshop labor, or produce nuclear power, weapons, tobacco or alcohol, or engage in gambling.
Q: Does this limit your universe?
A: Very little. High-quality companies tend to be socially responsible. They tend to have good records on the environment and treat their employees well, which results in lower turnover and ultimately lower costs.
Q: Does screening enhance performance?
A: It can. In the fall of 2000, for instance, we were forced to sell Tyco International. Tyco (TYC ) had released information on its environmental record that Calvert saw as negative. Tyco's price has since dropped 70%.
Q: What are you buying now?
A: Drug stocks like Pfizer (PFE ) and Schering-Plough (SGP ). The sector has been battered by worries about patent expirations and lack of new products, and valuations are at their lowest point in eight years. We think in two years drug company profits will look much better.
Q: So you have a long time horizon?
A: We hold stocks two to four years. If you're not worried about this coming quarter, you have the luxury of sorting out long-term winners.
Q: What else do you like?
A: I'm buying tech stocks like Cisco (CSCO ), Dell (DELL ), Intel (INTC ), Microsoft (MSFT ), and Oracle (ORCL ). These companies have a strong competitive position and will thrive when macro conditions are better.