April 12, 2002
Two Balanced Social Funds Outperform Over the Longer Term
by William Baue
The Pax World Balanced Fund and The Green Century Balanced Fund beat over 90 percent of their peers
over a five-year period.
While most mutual funds are limited to one type of investment, such as equity or fixed income
(bonds), balanced mutual funds blend these two investments with the aim of creating a lower risk
product. Typically, balanced funds concentrate the majority of their holdings in stocks, while
setting a minimum threshold for bond exposure. All figures quoted in this article are current as
of March 31, 2002, and have been provided by Weisenberger, except as noted.
The Pax World Balanced Fund
(ticker: PAXWX) prospectus stipulates a maximum of 75 percent commitment to stocks and a minimum of
25 percent commitment to bonds in its portfolio. Currently, the fund contains 58.7 percent stocks
and 27.1 percent bonds, making up the difference with 14.2 percent in cash and equivalents,
according to Chris Brown, the Balanced Fund portfolio manager for Portsmouth, New Hampshire-based
Pax World Funds. This strategy has proven
"For the first quarter of 2002, the fund returned 0.70 percent versus
a return of 0.03 percent for the Lipper Balanced Fund Average [which tracks 511 funds]," said Mr.
Brown. "Increasing our equity component along with cash and equivalents while decreasing the bond
component proved to be a winning strategy."
The Pax World Balanced Fund has also performed
well over the long term: it is the second-best performing social balanced fund over the past
three-year and five-year periods ending March 31, 2002, earning annualized returns of 2.95 percent
and 11.81 percent, respectively. Over the five-year period, the Pax World Balanced Fund
outperformed 91 percent of all mutual funds in its peer group. It is also the oldest social fund,
established in 1971, and the second-largest socially screened fund, with more than $1.1 billion in
Boston-based Green Century
Capital Management, which is wholly owned by several state Public Interest Reseach Groups, offers a balanced fund that
reflects the PIRGs' commitment to renewable energy.
"What we're really seeking out are
green companies that can make a positive difference, and these all tend to be small capitalization
growth companies--by small cap I mean under two billion market cap," said Portfolio Manager Jack
Robinson, who also serves as President of Winslow Management Company. "We are volatile, no
question about it--more than most balanced funds, which are in large cap companies. But over the
long haul--if you look at the one-year, three-year, and five-year numbers--it pays off. You can't
look at this quarter-to-quarter."
Of the social balanced funds tracked by SRI World Group,
the Green Century Balanced
Fund (GCBLX) was the top-performing fund over three-year and five-year periods. Over the past
five years, the fund earned an annualized return of 13.23 percent and beat 96 percent of all funds
in its peer group. Over the past three years, the fund earned a remarkable 18.82 percent
annualized return, which was good enough to outperform 99 percent of its peers.
Boston-based Walden Asset Management's Social Balanced Fund (WSBFX) was the top performing
social balanced fund over the past year, generating a 4.94 percent return. On the other hand, The
Green Century Balanced Fund's performance has mirrored the market downturn, earning a return of
1.94 percent over the past year.
"The fund performed poorly in the first quarter, [due
to] the very large commitment we have to renewable energy," said Mr. Robinson. "We have two wind
stocks in the portfolio that were hurt because the wind tax credit bill was not signed until late
in the quarter. Since then, the wind tax bill credit has been extended by 2 years."
fund's commitment to renewable energy may bode well for the future, though.
"As oil prices
go up, alternative energy looks better from an economic point of view," said Mr. Robinson.