Apr 28
Socially Responsible Investing
How does one apply “Socially Responsible Investing” to a portfolio when the portfolio is populated with baskets of stocks that are bound to include what many call “sin stocks?” If one opposes war, but invests in companies that specialize in weapons production, is there a solution to the problem? The short answer is, no. There is no “pure” solution if one uses ETFs to populate a portfolio. However, it is not as bad as one might think.
In SRI circles there is the 5% rule. At least some organizations have a policy stating they will not invest in any company that does more than 5% of its business in objectionable areas. Different groups have different screens. Common to all groups is weapons, gambling, and tobacco. For example, Altria does more than 5% of its business in tobacco, so it is eliminated from the portfolio. The 5% rule is violated. The screen I used was much broader and includes human rights, environment, adult entertainment, tobacco, firearms, military, gambling, etc.
Using this extensive list of socially unacceptable stocks, I did an analysis on the AA-Mosaic Portfolio to see what percentage of the portfolio is tied to ‘problem’ stocks. The chances were fairly good there would not be too high a percentage of “sin stocks” in the Mosaic portfolio since the portfolio holds only 15% in large-cap stocks. “Sin stocks” tend to be found in the large-cap arena.
While I would not claim to have found every objectionable stock in all the different asset classes, the AA-Mosaic Portfolio, to the best of my knowledge, holds between 2% and 3% ‘problem’ stocks. If one were able to eliminate big oil companies such as Exxon, the percentage would drop dramatically. One way to reduce the percentage in the Mosaic portfolio is to populate the large-cap value and growth asset classes using individual stocks, thereby controlling the two asset classes that hold the highest percentage of “sin stocks.” Regardless, the portfolio appears to pass the 5% rule.
Lowell Herr
Photograph: Hiker above Ollantaytambo, Peru. In the distance to the right and on the side of the mountain is a grain storage facility.