Assets: Loose Change

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By Elspeth Cisneros; Additional Reporting by Mark Barna

Green Investor Beware

On the one hand, nuclear power is a menace to life on earth. Any environmentally responsible mutual fund should exclude companies producing it.

On the other hand, nuclear power is the only energy source with the capacity to wean the planet off fossil fuels and avert climatic catastrophe. The sector should be included in green investment portfolios.

With such polarized public perceptions, what’s an investor to do?

An extreme example, perhaps, but environmental and social responsibility has many meanings to many people, especially when it comes to investments. And, it is that diversity of buyer perspective which can lead to mutual funds billed as “environmentally or socially beneficial” that are designed to please everyone but end up pleasing no one.

“We live in a complex world,” says Cliff Feigenbaum of the “Green Money Journal.” “There is a whole spectrum of holdings and definitions of socially and environmentally sound mutual funds.”

Almost all mutual funds in this category bar the most notorious companies, in terms of public perception, such as arms manufacturers and tobacco producers, but beyond that, investments often reflect the same diversified, established holdings that traditional mutual funds do.

Take a look at the Calvert Social Investment Fund Balanced Portfolio. The fund, popular in retirement plans, has 405 companies in its portfolio. It is made up of stocks and bonds and reports an 8.76 percent average annual return since inception in 1982. Included in its top 10 holdings are Proctor and Gamble, boycotted by many environmental and animal rights activists, as well as other more neutral companies such as AT&T and Microsoft.

“There are no perfect companies,” says Neil Orlofske, an internal wholesaler with Calvert. “But we have criteria and if a company can change, we will consider it for investment.”

With 30 shareholder resolutions planned for this year alone, Calvert uses shareholder activism as a tool to keep its holdings in line. For example, they recently filed a shareholder resolution with Pfizer for political contribution disclosure, which was successful. That may sound empowering, but Orlofske admits the tactic’s limits.

“There’s Exxon Mobile for example, a company with major environmental problems,” explains Orlofske. “For us to try to target them wouldn’t be very effective. Basically, there would be very little communication on their part.” And that’s putting it diplomatically.

The other option, choosing a mutual fund with a more specific focus, provides a way to fine-tune your investment strategy with your beliefs. The Guinness Atkinson Alternative Energy Fund, for example, has its top investments in solar, hydro, biofuel and wind energy. A lineup far more typical of what most would consider an ecologically sound fund.

Although this particular fund has performed exceptionally well with first-quarter returns at 14.56 percent this year, being non-diversified and composed entirely of stocks in smaller companies, the risks are far greater.

Sacramento-based financial adviser Bob Dreizler sees a broader trend in the split between high-risk funds reflecting a particular area of interest and the safer, diversified mutual funds rejecting only the worst offenders.

“It used to be my job to convince people that social investment funds weren’t that different from regular mutual funds,” says Dreizler. “Sometimes the hardest part now is seeing if a fund is strict enough from an investor’s ethical standpoint.”

Making the Nut

What does paying off your monthly expenses have to do with “making the nut?” Back in the days when circuses rolled into town on horse-drawn wagons, local officials figured out a way to keep potential fly-by-nighters from skipping out before paying local vendors and taxes. By taking the nut from a wagon wheel, collectors made sure circus operators had to cover their expenses if they wanted to leave in their wagon. Once bills were paid, the circus fixed the wheel and on the show went.

My First Million

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