SRI Mutual Funds: Robin Hood or Robber Baron?

My Competition

A couple weeks ago I got into a discussion with Marc Gunther about socially responsible (SRI – the “I” is Investing) mutual funds and how I feel that they charge too much for the services they provide.  This is of course rather self-serving, since socially responsible mutual funds and alternative energy mutual funds are my most direct competitors for business… there really are very few independent investment advisors who will manage portfolios of individual securities for accounts under $1M… almost everyone uses mutual funds.  So in the socially/environmentally  responsible realm, my real competition is advisors using socially responsible and alternative energy mutual funds, and/or people who manage their own portfolios with these funds.

There’s a certain amount of Robin Hood, when it comes to SRI funds: they do charge high (compared even to the mutual fund industry) fees, but they also engage in valuable social research, and even in advocacy for social change.  I don’t dispute that these are valuable services, but I wonder if the funds investors are getting good value for their money.  After all, despite my Robin Hood metaphor, the people paying the fees are not the fabulously wealthy, they actually tend to be smaller investors… perhaps it would be better if the research and advocacy were done by nonprofit groups, and the socially responsible mutual funds just followed the nonprofit’s lead as to where they invest.

Using Nonprofits for SRI Research

The question is, what reliable data is published by nonprofits that we can use to better inform the social aspects of our investing decisions.  So I set out on an Internet quest, to see what I could dig up (putting aside for the moment everything I know from my own research, which consists of keeping up with environmental and energy news as well as changes in alternative energy technology.)  I limited my search to just climate change (who’s helping, who is causing the problem) and thought I’d Google around and see what I could find. 

The National Resources Defense Council publishes reports bench marking the 100 largest electric power producers for air emissions.  Using their data, I thought I’d see if I could pick out some of the best electric utilities.  Among investor owned utilities with more than 20 million MWh of generation, the lowest emitters per MWh generated (2005 data) are: PG&E (NYSE: PCG), Exelon (NYSE: EXC), Entergy (NYSE: ETR), PSEG (NYSE: PEG), and FPL (NYSE: FPL).

Looking over this list, I note a heavy reliance on nuclear power, which I have to say does not make me happy when I’m looking for environmentally responsible companies.  has a list of US Nuclear Utilities, and guess what: they’re all on the list!  It’s surprisingly hard to find good data on how much power each utility gets from nuclear… unsurprisingly, perhaps, utilities are not vying with each other for nuclear leadership (with the exception of Exelon, which claims to produce about 20% of the US’s nuclear power on their site.

  So what would be environmentally responsible?  How about a lot of wind generation, and, even better, am emphasis on energy efficiency and demand side management programs?  So I went over to The American Council for an Energy Efficient Economy (ACEEE) and noted that of the companies in my list, PG&E won their award for best practices for their upstream residential lighting program.

It’s not that easy

And now it’s two hours later, and I have to come to the conclusion that I was wrong… there really is no nonprofit that compiles the necessary information in an easy to use way to help an investor use objective criteria to understand the social positions of companies, so the research that these mutual funds do is hard to replicate (although not hard to copy: simply get a copy of their prospectus and mimic their holdings in your discount brokerage account.)   However, copying their portfolio does not lessen the value of the research that went into it… it just is a way of making use of their research without paying for it.

But does it need to be that expensive?

Is the price they charge for their service a reasonable one?  Considering they typically charge 0.5% to 1% of assets more than a typical low cost mutual fund, it still seems high to me.  Just to pick on one fund at random: the Citizen’s Value Fund (MYPVX), which has an annual expense ratio of 1.29% and assets under management of $45.68M, compared to the CMG Large Cap Value find (CLCPX) which I chose because it was another large cap value fund with similar assets under management ($39.59M) and an annual expense ratio of 0.5%.

Looking at these numbers, we see that this smallish Citizens Fund is charging its customers approximately $360,000 a year for their social research and advocacy.  That seems like enough to me to keep three well-paid analysts happy, and certainly enough money to run a nonprofit with a dozen underpaid but dedicated interns to keep track of which large cap value companies are socially responsible under a wide variety of criteria.

MYPVX is just one of a couple hundred SRI funds… many of which doubltess share research into which companies are being responsible, using their criteria. There is no doubt in my mind that this reasearch is valuable, and that their assets have an effect on the behaviour of companies in the market. Is it worth it? You decide every time you invest.


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  3. Len S said

    I averaged the 121 SRI funds listed on and got an average ER of 2.17. 24% of them ALSO charge front loads. I am sure that 12b-1 fees are also out there. To me these 121 SRI’s do appear to be a very sad story. The average 10 year return for those SRI’s that were at least 10 years (1997-2006) old was only 5.94%. The 100% stock SP500 for that time period was 8.43% and the the Vanguard Wellington Fund (65% stock, 35% bonds) was 9.8%. I really doubt that giving money away helps the environment or other SR issues.
    There are computer programs for filtering different types of SRI’s. The only index fund I have found is a Vanguard large cap fund with an ER=0.16%. The rape of the uninformed continues.

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