New Financial Study Shows Stocks Can Reflect Investor Values
without Sacrificing Performance
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
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,"
"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,"
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
own firm actively manages investment portfolios using a concept
he calls Advocacy InvestingSM.
Unlike the static hypothetical groups of stocks in the study,
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.
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."
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,