Managed Money Reporter Newsletter — Issue 169, March 2001


Editors: Carl Spiess & Allan McGlade


Featured Articles



Socially Responsible Investing

We all want to do the right thing.  And when it comes to investing, consideration should certainly be given to the ethical or social impact of the operations of the companies we invest in.  On the surface, certainly no one wants to consciously invest in companies that exploit child labour, destroy rain forests, or deal in weapons of mass destruction.

However, when it comes to actually constructing a screening process as to which companies to invest in, ethical or socially responsible investing becomes more complicated.  Should companies that haul garbage be included?  Should the logging company that cuts some virgin forest but replants more than any of its competitors be excluded?  And important to investors, will returns be better or worse, from such a screening process?

The good news for Canadian Investors is that there are now a number of funds available that focus on socially responsible investing.  In the US, social values funds represent almost 10% of new investment assets.  (Curiously, in the US there was a "Sin" fund that only invested in gambling, tobacco and alcohol stocks - and that fund has changed its focus to entertainment, as it suffered from poor returns and low investor interest).

Socially Responsible Investing (SRI)

This unique form of investing incorporates social and environmental values into the investment decision-making process - essentially striving to increase investment capital in a manner that is consistent with the needs of society and the limits of ecosystems.

Business activity produces a wide range of economic, social and environmental impacts.  Corporations respond to the demands of their investors and customers.  Therefore, socially responsible investors are changing how corporations operate by encouraging companies to maximize the benefits of business activity while minimizing and eliminating negative impacts.

How do Mutual Fund companies choose what stocks are acceptable?

Individual Mutual Fund companies will likely differ in their exact criteria.
We have chosen to profile Ethical Group of Funds since they have the widest variety of Socially Responsible Funds to choose from and they were the first to introduce them.
In their screening process, Ethical Funds look for companies that fit the following criteria:

  • Non Tobacco
  • Non Military
  • Non Nuclear
  • Progressive Industrial Relations
  • Promote Human Rights and Equal Opportunity
  • Progressive Environmental Practices

Actionable Steps

To review your investments, your personal risk tolerance, or to discuss our available social values funds, please contact one of our associates at 1-800-387-9273 or email us.

Taking Ethical funds as an example, we looked into what they do aside from investigating which stocks to buy or sell. Due to the size and range of their investment activity and because of their familiarity with the issues, Ethical Funds has the opportunity to engage directors and senior management in extensive dialogue about strategic directions and operational decisions.  The following are the actionable steps that are often taken:

  • Writing to the specific companies to inform them of concerns
  • Requesting meetings with senior management, CEOs or members of the Board of Directors
  • Contacting and meeting with environmental organizations, social justice groups, and representatives of communities to acquire an enhanced understanding of location-specific issues and local perspectives
  • Filing shareholder resolutions

How do they Perform?

Strictly speaking on performance, the flagship Ethical Growth fund has had mediocre returns over the last decade.  And its current holdings don't seem much different than many large cap Canadian equity funds.  As of Jan 31, it held Nortel, 4 of the 5 big banks, CN, Magna, and Suncor.  

Visit www.mutualfundreporter.com/ethical/ethicalfundlist.asp for the latest performance numbers on the Socially Responsible funds available through ScotiaMcLeod.

Other Socially Responsible Funds

One niche in the socially responsible list is the Clean Environment group of funds.  They largely focus on the technology stocks that will allow mankind to prosper on this planet and take care of the environment as well.  This makes them slightly different from most of the other Canadian social funds.  We would recommend looking at the two more broadly diversified funds from the same Acuity fund family and managers. Those are the Acuity Social Values Canadian and International Funds.

Over the years, we have spoken with several investment managers of regular mutual funds about Socially Responsible Investing.  When questioned, the managers have surprisingly similar comments.  Generally, they point out that companies who treat their employees well, that don't pollute or harm the environment, who care for the safety of their customers, generally don't get sued and attract good employees.  This in the long run is good business practice and is ultimately good for their shareholders.  Therefore, not being an "ethical" fund does not necessarily mean a fund invests in unethical companies.

Therefore, it really comes down to your personal investment preference.  We have included a list of the socially responsible funds that we offer here at ScotiaMcLeod.  Whether you choose to invest in these funds will be your decision.  However, we are sure that having the choice of several socially responsible funds is good for everyone.

To visit the mutual fund companies websites to find out more information about the funds holdings and what they have to offer, visit our website at www.mutualfundreporter.com/ethical for direct links to websites of interest.

Note: Some information contained in this publication has been provided by Ethical Group of Funds who can be contacted through our ethical funds link at www.mutualfundreporter.com/ethical

Nortel Drop – How does this affect my investments?

You have likely heard all about the nosedive that Nortel Networks, one of Canada's leading telecommunications firms, had last month.  This has affected many Canadian mutual funds, as it is one of the largest held stocks in Canada.  You likely own some Nortel in your portfolio through your mutual fund holdings.  The good news is that it is a good time to be investing and broad-based mutual funds are generally capped at 10% on any one individual holding.  

Index funds are an exception to this rule and Canadian Stock Index Funds will be the mutual funds most affected by the Nortel drop.  Index funds are reflective of the performance of the TSE 300 as a whole and Nortel is an index heavyweight (see issue MFR 155 - January 2000).  

As with any market fluctuation, we continue to maintain our buy and hold philosophy for investing.  If your mutual funds drop, it is likely one of the worst times to consider selling them.  We, of course, recommend that your portfolio be diversified and an investment in a stock indexed mutual fund should reflect a desire to hold a somewhat more aggressive position, preferably for a smaller portion of your portfolio, or for dollar cost averaging.  Email us about an investment review or phone us at 1-800-387-9273.

Fund News

Dynamic has introduced 16 new funds, all of which are 'class' funds. i.e. more tax efficient when held outside an RRSP. 

Working Ventures has recently introduced a new fund - The Working Ventures II Tech Fund

Franklin Templeton has recently introduced two new foreign funds:

  • Franklin World Growth
  • Franklin World Growth RSP (100% RRSP-eligible) 

AIM Group of Funds has introduced four new funds:

  • AIM Canadian Leaders
  • AIM Global Sector Managers
  • AIM RSP Global Sector Managers
  • AIM RSP Global Financial Services 

 



Contact Us

T.  416.863.RRSP (7777)
     1.800.387.9273
F.  416.863.7479
E. carl.spiess@scotiawealth.com
    allan.mcglade@scotiawealth.com

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