August 30, 2006
Green Century Equity Fund Seeks Shareowner Okay to Continue Tracking Domini Social Index
by Bill Baue
Green Century also announced its intention to lower the expense ratio for the fund with aim of
enlarging the fund's investor base.
The shift of the Domini Social Equity Fund (ticker: DSEFX) from passively tracking
the Domini 400 Social Index (DSI) to active management has left many
in the socially responsible investing (SRI) field asking if a DSI-tracking fund will take its
place. Green Century
Management Company answered this question today in a preliminary
proxy filed with the Securities and Exchange Commission (SEC) seeking shareowner approval for the Green Century Equity Fund
continue tracking the DSI.
Since its 1995 inception, the Green Century fund has
maintained a "hub-and-spoke" structure whereby it invests its assets in the Domini Social Equity
Trust (or "hub"), then the only fund able to track the DSI due to its exclusive license with index
provider KLD Research & Analytics. Now, Green
Century wants to break free from the hub's new trajectory and continue rolling in the same
direction it has for more than a decade.
"When Domini decided to switch its fund to active
management, the Green Century Funds' board of trustees looked at all the different options--we
could have continued to track their fund as an active management style, but we decided it was in
the best interests of our shareholders to stay invested in the oldest and best-known SRI index in
the country," said Erin Gray, marketing and strategic analyst for Green Century. "The DSI has been
around for 16 years, it's helped define the market for socially and environmentally responsible
investing, it's a commonly used benchmark for the whole SRI industry--we consider it one of the
industry's flagship indexes."
"In addition, it's what our shareholders had originally
bought into," Ms. Gray told SocialFunds.com. "One of the keys for us was keeping a consistent
The proxy asks Green Century shareowners to approve Green Century
taking over from Domini Social Investments as investment advisor, and to approve the appointment of
Associates as subadvisor to manage the day-to-day portfolio management. The proxy also
announces Green Century's intention to lower the expense ratio of the fund from 1.50 percent to
0.95 percent--the same rate charged by the Domini Social Equity Fund as an index-tracker.
Green Century anticipates interest in its fund from Domini Social Equity Fund investors who
want to maintain exposure to the DSI, as well as institutional investors who prefer index tracking
to active management. Green Century currently offers only standard retail shares for its equity
fund, but according to Ms. Gray it is considering opening up different classes, such as
institutional share classes just as Domini has done with its fund.
institutional investors may already be apparent. For example, the investment committee of Petersen Hastings Investment Management
removed the Domini Social Equity Fund from its approved list due to the shift from index tracking
to active management and the fund's increased expense ratio.
"We will definitely introduce
the Green Century Fund to our investment committee after completing due diligence on it--on the
surface, the similar expense ratio to the Domini Fund and the index approach are positives," said
Jeff Petersen, managing director of Petersen Hastings. "It would be our hope that there would be
some added controls to keep the fund out of the Large US Growth category and in the US Large Blend
category--this would allow for the return attributes of the Green Century fund to be properly
compared to the S&P 500."
"The tilt towards growth of the Domini Fund has led investment
consultants to conclude that the social screens of the index have been the performance problem, not
the construction of the index 'weightings,'" Mr. Petersen told SocialFunds.com. "There are ways
that the index could be improved if additional risk controls were put in place--it is our hope that
there will be some consideration for this enhancement."
While Green Century has actively
practiced shareowner advocacy through its equity fund holdings in the past, the structural change
to the fund creates the potential to enhance this work.
"Through the hub-and-spoke
structure, the actual ownership belonged to the hub portfolio, so our proving of ownership was a
few arms' lengths removed," explained Ms. Gray. "By directly investing, we will remove barriers to
proving ownership and engaging directly with companies."
Green Century also filed a
supplement today to its prospectus for the Green Century Balanced Fund (GCBLX) noting its intention to
decrease the expense ratio a full percentage point, from 2.38 percent to 1.38 percent.
realized there was a pretty significant change to our equity fund--not in management style or
investment objective, but in management structure of how the fund is operated, and we saw a
potential, by lowering fees for both funds, to attract more assets and grow our fund family overall
and help us cover our costs through a larger investor base," said Ms. Gray. "We've been thinking
about this for a long time--we know that the high fees on both funds have sometimes been suggested
as a hurdle to investment in the funds, so we saw this as the right opportunity to growing Green