September 22, 2005
Domini Goes Abroad with New European Fund
by William Baue
The fund allows US social investors to diversify their portfolios into a region with attractive
investment opportunities and corporations with strong sustainability commitments.
One limiting factor of socially responsible investing (SRI) in the US has been a relative dearth of
mutual funds in certain asset classes, styles, and regions, making it challenging to diversify
portfolios broadly. For example, of the 45 broadly screened SRI equity and balanced funds tracked in the
SocialFunds.com Mutual Funds
Center, only five are international.
Domini Social Investments seeks to redress this limitation by
launching on October 3 the Domini European Social Equity Fund (ticker: DEUFX). The fund will focus on
mid- and large-capitalization companies with strong corporate social responsibility (CSR) records
in that region. It is the first US SRI fund to focus on a specific international region.
"From an investment perspective, Europe is the largest stock market region outside of the US,
offering opportunities for portfolio diversification," said Jeff MacDonagh, Domini's SRI portfolio
manager who is taking the reins on this fund. "European integration is driving productivity and
profit growth, and the region enjoys a trade surplus as well as relatively high rates of household
income and savings."
Domini's no-load fund will have a 1.6 percent expense ratio, putting
it on the lower side compared to other SRI international and global funds. Portfolio 21 (PORTX) has a
lower expense ratio (1.5), while the MMA Praxis International Fund (MPIAX--1.63), Enterprise
Global Socially Responsive (EGSAX--1.75), the Calvert
World Values International Fund (CWVGX--1.97)and Citizens
Global Equity Fund (WAGEX--2.05) all have higher
"From a social investment perspective, European companies are leading the
pack on CSR issues," Mr. MacDonagh told SocialFunds.com. "For example, over 80 percent of vaccines
are made in Europe and 70 percent of new residential developments in the UK are on redeveloped
"Europe is committed to the Kyoto Protocol on
global warming, so we're seeing significant growth in alternative energy," added Steve Lydenberg,
Domini's Chief Investment Officer. "Almost three-quarters of new windpower capacity installed in
the world last year was in Europe."
Lack of SRI research covering global markets has
hampered the development of US-based international social investing, according to Mr. MacDonagh,
who in the past worked for Boston-based SRI research provider KLD Research & Analytics.
"Five years ago, when I was
researching nukes for KLD, I had a lot of trouble finding information in English, whereas now, I'd
say about 95 to 99 percent of reports coming out of Europe are in English," he said. "This was
another part of the reason why we decided to enter the European region."
Domini is using a
combination of external and internal SRI research.
"We're sourcing our research from the
SiRi Company, a global consortium of SRI
research providers, for the initial-level coverage of major-name companies," explained Mr.
MacDonagh. "SiRi's Harmonized Profile, which collates information from multiple SRI research
sources, is similar in form to KLD's research but focuses more on management and corporate
governance, reflecting the fact that Europeans take a more structural approach to assessing
"Our in-house research comprises press searches over Nexis using an algorithm to identify items on corporate
social and environmental issues," he continued. "We also use Bloomberg to examine ownership information, as well as reading
companies' annual reports and CSR reports."
Domini will apply its standard social and
environmental screens to the fund, including exclusionary screens on tobacco, alcohol, gambling,
nuclear power, firearms and nuclear contractors. Screening will also take into consideration
performance on corporate governance, community and corporate citizenship, employee relations and
diversity, environment and sustainability, labor and human rights, and product and consumer issues.
Domini will also engage in shareholder advocacy with fund holdings.
While the launch is
not until early next month, Domini has already announced a subscription period for investors to
pre-purchase shares at $10.
"We're offering the advance subscription process to seed the
fund with a sizable amount of assets for its launch," said Mr. MacDonagh. "We're very pleased with
the positive response we've gotten so far, with a large number of subscriptions already drawn
predominantly from our core base of shareholders, though of course the fund is also open to the
The fund, which will be submanaged by Sylvia Han of Wellington Management Company, will hold between 65 and 70
stocks, and will benchmark financial performance against the MSCI Europe Index.