Investing In Your Values, Yesterday, Today And Tomorrow

Investing In Your Values, Yesterday, Today And Tomorrow

September 2016



Just a few years ago I told the investment committee of a large local church that of course they could have a Socially Responsible Investment policy (SRI)…. if they were willing to give up their day care center and homeless shelter.

That estimate was my best guess of the impact of approximately 3% additional cost and reduced investment opportunities on their endowment fund. Not only were the then available socially responsible funds ridiculously expensive, but diversification opportunities were extremely limited beyond the S&P 500. Because true diversification options were so few their choices boiled down to a malformed undiversified equity portfolio, or one that was only about 20% social responsible.

The bottom line for me was that while I was sympathetic to their values, I couldn’t construct an investment policy that I believed was prudent or economical.


Today, socially responsible investors have far better options. A number of index fund or ETF families have applied widely applicable social screens on top of their existing strategies at nominal additional cost. So, many investors can realize highly effective, economical and efficient globally diversified portfolios that are consistent with their values.

We all know that Catholics, Jews, Quakers and Baptists have somewhat different concerns. Yet, they share many of the same values, and without trivializing their differences they are more similar than not. They might all agree that a portfolio that eliminated companies producing nuclear weapons, pornography, alcohol, gambling, tobacco, military arms and/or companies with child labor infractions would go a long way to meeting their criteria.

As an investment advisor I’m comfortable today at that the additional approximate 1/10th percent annual charge to cover an independent agency screening process isn’t unreasonable, and the tracking error generated by excluding about 4-5% of the world’s traded securities would be minimal. Those might be highly reasonable tradeoffs for certain investors.

Some compromises may always be necessary. It’s highly unlikely that everyone will get everything they want included in the screening process. Many laudable social criteria cannot yet be met with fully diversified portfolios. Unfortunately, if your SRI choices are not shared by sufficient other investors then a perfect solution may not be available to you.


Looking forward things are only going to get better for socially responsible investors. It’s getting easier and cheaper to implement computer managed customized screening for funds and ETFs. Overlaying these screens on existing passive strategies can economically deliver diverse SRI funds. As demand develops more choices will be available in the marketplace and more investors can satisfy their socially responsible investment preferences.


This article was written by Frank Armstrong III from Forbes and was legally licensed through the NewsCred publisher network.

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