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New Financial Study Shows Stocks Can Reflect Investor Values without Sacrificing Performance

Thursday, July 15, 2004


Study measures effect of positive corporate behavior

A new study concludes that investors can positively express their values on corporate behavior issues such as Social Justice and the Environment through stock selection---without sacrificing portfolio diversification or long-term performance.

The study, released by Chicago attorney, money manager and author , indicates that investors need not give up performance when assembling portfolios based on positive screening of certain desired corporate behaviors.

Typically, Socially Responsible Investing (SRI) has involved the use of negative screens to avoid investing in companies that do not reflect an investor's personal values. proposition is that investors can look for companies that reflect their own values using positive screening.

"This research is significant for investors seeking to support exemplary corporate behavior through their investments," said . "Our work indicates that, when Socially Responsible Investing relies on positive behavioral screening, there need not be any performance give-up. Put another way, investors may now be able to align their portfolios with their social goals, without compromising their financial objectives."

continued: "If, for example, a non-profit or a family foundation is dedicated to relieving human suffering, combating HIV/AIDS, or running a food bank, it can be true to its mission and invest only in companies that have comparatively strong Human Rights records."

Some investors have avoided SRI because they perceive performance and diversification limitations. While many SRI money managers use negative screening to rule out entire industries (such as alcohol, tobacco, gambling, adult entertainment, defense, chemicals or energy), study examined the nine-year performance of stocks grouped by highly specialized positive screening methods based on a company's Environmental Practices and Social Justice.

Social Justice consists of Diversity/Employee Relations and Human Rights. (The time frame analyzed, January 1995 though December 2003, was the most recent period for which sufficient social data could be collected for the 2,884 companies examined.)

"Positive screening of company social behaviors can empower investors--without eliminating entire industries--to deploy capital in a way that gives voice to their values and principles," said. And his new study, Corporate Behavioral Screening: A New Perspective for Social Investors, concludes that this expression of values can be accomplished without sacrificing either diversification or long-term performance.

In the study period, from January 1995 through December 2003, the most rigorously screened subsets of companies' behaviors in Social Justice and the Environment achieved gross compound annual return rates of 14.62 percent and 15.58 percent, respectively (versus 13.05 percent for the benchmark universe, consisting of the 2,884 stocks for which data could be compiled within the Russell 3000 Index).

Within the Social Justice practice area, the subset of Diversity/Employee Relations achieved gross rates of 14.38 percent and the subset of Human Rights achieved 14.83 percent. The study involved performance analyses of hypothetical subsets of the universe, rather than actual managed portfolios, and does not necessarily reflect or predict investment results in actual practice.

believes that positive screening--and proactively investing in companies which the investor deems to be engaged in socially desirable activities or practices--will find growing acceptance as both individuals and institutions increasingly exploit the opportunity to drive their core values and missions through investment selection.

own firm actively manages investment portfolios using a concept he calls Advocacy InvestingSM. Unlike the static hypothetical groups of stocks in the study, Advocacy InvestingSM first applies financial and corporate governance screens to narrow down the universe and then, after "drilling down" to ascertain the investor's unique core values, designs an individually-tailored portfolio of stocks and bonds in companies which have demonstrated behavior compatible with those views. All client accounts are individually customized and managed separately, without pooling or commingling of any kind. The minimum account size is $500,000.

"Advocacy InvestingSM is fundamentally different from conventional exclusion," said. "It' s not for everyone. It all depends upon your point of view. Would you rather be passively avoiding whole industries, or actively promoting change by investing in companies which you believe are moving in the right direction?"

continued: "While we can still exclude an industry for those clients who want to do so, for most of our clients it's a whole lot more meaningful to promote a cause you believe in than to avoid one in which you don't."

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The Law Offices of Marc J. Lane, a Professional Corporation, and its financial affiliates have, since 1971, offered specialized legal and wealth management services to individuals and the entities which they own and control. Mr. Lane is an Adjunct Professor of Law at Northwestern University School of Law and an Adjunct Professor of Business at the University Of Illinois College Of Business Administration.

Marc J. Lane Investment Management, Inc. (www.marcjlane.com ), an affiliate of Lane's law firm, utilizes Advocacy InvestingSM, a proprietary application of corporate behavioral screening techniques, in addition to analysis of fundamental financial data and corporate governance. Advocacy InvestingSM is a service mark owned by Marc J. Lane Investment Management, Inc.

 


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