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May 03, 2005
Newly-Launched Funds Advance the Maturation of Socially Responsible Investment
    by William Baue

Calvert launches two fund of funds comprised of existing Calvert funds across a range of asset classes; Domini releases load-share clone of flagship fund for use by commission-based brokers.


The launch of new mutual funds from the Calvert Group and Domini Social Investments this week advances the maturation of the socially responsible investment (SRI) market, evidenced by the deepening sophistication in strategy (as well as semantics) used by the new funds. The products are not as much new funds as diverse and efficient new ways of accessing existing funds.

Calvert's new releases, the Calvert Conservative Allocation Fund (ticker: CCLAX) and the Calvert Moderate Allocation Fund (CMAAX), fall into the "fund of funds" category, or a mutual fund constituted with a collection of existing mutual funds. This strategy allows even investors with smaller sums to employ Modern Portfolio Theory, which holds that diversifying across a wide range of asset allocations enhances returns while reducing risk.

The Domini Social Equity Portfolio Class A clones the Domini Social Equity Fund (DSEFX), which tracks the Domini Social Index, a benchmark that applies exclusionary social screens to the S&P 500 then adds stocks that pass positive screens to reach the goal of 400 constituents. While the no-load status of the 14 year-old Domini Social Equity Fund contributed to its popularity amongst investors and fee-based financial advisors, commission-based advisors and brokers need a load-share product to compensate them for the advice they offer clients.

"These new funds represent an expansion of tools in the SRI toolbox, moving us further along the continuum," said Kathy Leonard, president of the Center for Responsible Investing, a Boulder-based SRI financial advisory. Discussing the Calvert strategy, she said, "the real benefit of the concept of a fund of funds is that you can increase diversification for a smaller dollar amount."

Most funds require minimum investments (often in the $1,000 range), making it difficult to diversify across multiple asset classes through multiple mutual funds. A fund of funds solves this problem by gathering multiple mutual funds under one roof. However, the total expenses for the Calvert funds are relatively high at 1.65 percent for the conservative fund and 1.73 percent for the moderate fund.

"I don't see the expense as necessarily a negative, because you're also paying for asset allocation management, which you would either have to do yourself or pay someone else to do it for you in individual accounts," Ms. Leonard told SocialFunds.com.

Calvert retained Ibbotson Associates to provide asset allocation expertise.

"Ibbotson will recommend an initial asset allocation target mix for each Fund and the underlying Calvert funds to be used to achieve the target mix," said Melinda Lovins, corporate communications specialist at Calvert. "Ibbotson uses a statistical technique to recommend, given a fixed number of asset classes, the best risk and return profile that can be achieved using various Calvert funds, and Calvert Asset Management Company (CAMCO), the Funds' investment advisor, makes the final decisions."

The conservative fund will allocate 60 to 80 percent in the CSIF Bond Portfolio (CSIBX) and 20 to 40 percent in Calvert equity funds. The moderate fund will allocate 50 to 80 in Calvert equity funds and 20 to 50 in the CSIF Bond Portfolio. Both funds will allocate 0 to 10 in the CSIF Money Market Portfolio. Underlying Calvert equity fund choices include the Large Cap Growth Fund (CLGAX), the Social Index Fund (CSXAX), the World Values International Equity Fund (CWVGX), and the New Vision Small Cap Fund (CNVAX).

Studies show that asset allocation influences performance as well as risk and reward.

"Research has shown that an investor's asset allocation decision is responsible for more than 90 percent of a portfolio's total return over time--not what the actual securities were in the portfolio or even when they were bought and sold," Ms. Lovins told SocialFunds.com.

While the new Calvert funds fills a diversification gap in the SRI market, the new Domini fund responds to a trend throughout the investment industry toward retail investors accessing services from brokers and financial advisors, who often earn commissions through loaded funds. A "load" refers to a sales charge or commission tacked on to a mutual fund to compensate brokers and advisors for their services, as compared to a no-load fund where any professional financial assistance is compensated through fees instead of commissions.

"Until now there has been no Domini product that meets the needs of commission-based brokers," said Ken Nostro, Domini's director of broker-dealer distribution. "Our new Class A shares can easily be as popular among commission-based brokers as the Domini Social Equity Fund is among fee-based advisors and do-it-yourselfers."

The Domini Social Equity Portfolio Class A shares will charge a tiered front-end load that starts at 4.75 percent.

"This is another step toward the maturing of the SRI industry, but there's still a ways to go," said Mr. Nostro.

Mr. Nostro, a former vice president at Credit Suisse Asset Management, joined Domini to help educate mainstream brokers and advisors about SRI.

"We ideally want to get to a point where all traditional advisors and brokers, in addition to those already committed to SRI, offer SRI to their clients on a normal basis where appropriate," Mr. Nostro told SocialFunds.com.

 

 
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