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October 12, 2004
Calvert Fills Gap in Small- and Mid-Cap SRI Value Categories With Two New Funds
    by William Baue

The two new funds add diversification options to the socially responsible investment (SRI) palate.


Modern Portfolio Theory holds that broad diversification across asset classes and investment styles helps insulate investors against risk. Socially responsible investment (SRI) practitioners have a wealth of options in the large-cap asset class, but a more limited choice of small- and mid-cap SRI funds. The options in these asset classes also tend more toward growth funds (which invest in companies with projected earnings or revenue growth) than toward value funds (which invest in solid but under-priced companies), further complicating diversification. To fill this relative gap and enhance diversification options, the Calvert Group launched the Calvert Small Cap Value Fund (ticker: CCVAX) and the Calvert Mid Cap Value Fund (CMVAX) last week.

Calvert hedged its bets by assigning lead portfolio manager duties for both funds to Eric McKissack, who managed one of the few SRI mid-cap value funds, the Ariel Appreciation Fund (CAAPX), during his 16-year tenure at Ariel Capital Management. The Ariel Appreciation and the Ariel Fund (ARGFX), a small-cap value fund, are two of the most consistent financial performers in the SRI field, with 10-year annualized returns of 14.62 percent and 15.30 percent respectively. Mr. McKissack, who now serves as chief investment officer of Channing Capital Management, will be joined by Wendell Mackey, director of investments for Channing, who will co-manage the funds.

"Our investment philosophy is to employ an intrinsic-value methodology," said Mr. McKissack. "Through this strategy, we attempt to identify companies that have a current market price that is at a significant discount--in the range of 40 percent--to their fair market value."

Calvert bolsters its case for small-cap value investing by comparing 10-year annualized returns (as of June 30, 2004) for the Russell 2000 Value Index (13.91 percent) to those of the Russell 2000 Growth Index (7.15 percent).

Calvert supports the case for small-cap investing by comparing historical Russell 2000 Index annual returns to those of the S&P 500, which tracks large-cap stocks as of December 31, 2003. Over the past 10 years, the former has outperformed the latter, 15.3 percent to 11.0 percent; over the past 40 years, 15.2 percent to 10.3 percent. (Over the past 20 years, the two indexes ran neck and neck, 13.5 percent to 13.4 percent.)

However, small- and mid-cap investing tends to be research-intensive, as information on these smaller companies is harder to obtain, a fact reflected in the relatively high expense ratios for the two new funds. The net expenses for Calvert Small Cap Value Fund is 1.69 percent, 1.59 percent for the Calvert Mid Cap Value Fund.

In addition to supporting the financial research, the fees also help cover Calvert's social research.

"Channing's rigorous review of a stock's financial performance works in tandem with Calvert's thorough assessment of a company's corporate integrity across seven broad areas of concern, including the environment and corporate governance," said Steve Falci, Calvert's chief investment officer for equities. "Stocks must pass this double diligence investment process before we invest."

The minimum investment to open an account in either fund is $1,000.

 

 
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