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February 04, 2003
Three-Year Mutual Fund Performance Bodes Well for SRI Mutual Fund Firms
    by William Baue

Huge net inflows at several SRI mutual fund firms result in overall net inflow for all SRI mutual funds.

The Social Investment Forum (SIF) recently announced findings that indicate socially responsible investment (SRI) mutual funds are weathering the bear market of the last three years better than the overall U.S. mutual fund universe. The SIF, a trade organization for the U.S. SRI industry, based its assessment on data from Morningstar and Lipper as well as on the SIF's own data for the 51 screened mutual funds it tracks. Morningstar and Lipper are the two primary mutual fund rating agencies in the U.S.

SRI mutual funds outperformed the overall U.S. mutual fund universe in terms of earning top Morningstar ratings for three-year performance. Specifically, 43 percent of the funds the SIF tracks earned Morningstar ratings of four or five stars for three-year risk-adjusted performance through December 31, 2002. During this same period, only 32.5 percent of the overall U.S. mutual fund universe received such ratings from Morningstar.

Six of the funds that the SIF tracks earned five stars, the highest Morningstar rating. They include three Bridgeway funds as well as the Parnassus Equity Income Fund (ticker: PRBLX), the Walden Social Equity Fund (WSEFX), and the Women's Equity Fund (FEMMX). While the Parnassus Equity Income, Walden Social Equity Fund, and Women's Equity funds are broadly screened, the three Bridgeway funds screen only for tobacco.

SRI firms that had more than one mutual fund earning Morningstar ratings of four or five include Ariel Funds, Bridgeway Funds, the Calvert Group, Parnassus Investments, Pax World Funds, and Walden Asset Management.

These funds helped keep the money flowing into SRI mutual funds during 2002 while money flowed out of U.S. diversified equity funds. According to Lipper, a Reuters-owned firm that tracks 80,000 mutual funds worldwide, SRI mutual funds experienced a net inflow of $1.5 billion in 2002, while the universe of U.S. diversified equity funds experienced a total outflow of $10.5 billion.

The SRI fund universe used in the net inflow analysis differs from the SIF-tracked fund universe mentioned previously. Lipper's SRI fund universe includes 155 funds, many of which apply a single, narrow screen. For example, the GMO (Grantham, Mayo, Van Otterloo & Co.) Tobacco-Free Core Fund avoids investing in companies that derive more than 10 percent of gross revenue from tobacco-related business. Some social investors consider such funds as too narrow to be labeled socially responsible investments.

Readers may question why Lipper's net inflow analysis compares an SRI universe that includes both equity and fixed income mutual funds to an overall universe that includes only U.S. diversified equity funds, exclusive of fixed income funds. SIF spokesperson Todd Larsen explained why.

"Because [the Lipper-tracked SRI] funds are almost entirely equities, Lipper chooses to compare asset flows between these SRI funds and U.S. diversified equities," Mr. Larsen told "It is Lipper's view that this is the most accurate comparison for the data it tracks."

The net inflow of $1.5 billion for 155 SRI mutual funds in 2002 can be attributed to the strong performance of a few SRI mutual fund firms. Those firms more than made up for other SRI mutual fund firms that had net outflows.

"Ariel Funds experienced $1.6 billion in net inflows for 2002, the bulk of which came into the Ariel Fund (ARGFX) and the Ariel Appreciation Fund (CAAPX), both of which have SRI screens," Ariel Funds spokeswoman Merrillyn Kosier told Ariel's two other funds, which accounted for a minor portion of the net inflow, do not employ SRI screens.

The Calvert Group, which had three funds with 4-star ratings from Morningstar, does not report its net inflow but instead reports the percentage increase of its total net sales.

"Last year, Calvert had one of its strongest sales years ever with total net sales increasing 41 percent over 2001," said Calvert Director of Corporate Communications Elizabeth Laurienzo. "Calvert, complex-wide, ended the year with almost $8.6 billion in assets under management, a 13.5 percent increase over 2001."


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