MoPress

Category: Social

  • TIAA-CREF Social Choices

    By Greg Moses

    “TIAA-CREF serves 3.6 million active and retired employees participating in more than 27,000 retirement plans and has $363 billion in combined assets under management (as of 12/31/08),” says the official website at tiaa-cref.org.

    There are two “social choice” products offered by TIAA-CREF. First is the CREF Social Choice Variable Annuity founded on March 1, 1990 and reporting net invested assets of $7.29 billion as of June 30, 2009.

    Next is the TIAA-CREF Social Choice Equity Fund (TRSCX), founded on Oct. 1, 2002 with reported net invested assets of $587.17 million as of June 30, 2009.

    In this post I will be focusing on the Equity Fund (not the Variable Annuity). According to a 2009 Prospectus posted at the TIAA CREF website:

    The [Social Choice Equities] Fund [TRSCX] primarily invests in companies that are screened by KLD Research and Analytics, Inc. (“KLD”) to favor companies that meet or exceed certain environmental, social and governance (“ESG”) criteria. The Fund does this by investing in companies included in the KLD Broad Market Social IndexSM (the “KLD BMS Index”) . . .

    At the KLD website (kld.com) we find a press release dated July 8, 2008 describing how the KLD BMS Index is constructed.

    The KLD BMS Index is comprised of 1,875 companies drawn from the “eligible universe” of the 3,000 largest US equities (the press release does not mention the Russell 3000 by name).

    Three KLD social indexes are combined to make up the Broad Market Social Index. The “eligible universe” is divided into large cap, mid-cap, and small cap ranges. Of the 400 large cap stocks eligible for selection, 247 “social stocks” are chosen. Of the 600 mid-cap stocks, 384 are chosen. And of the 2,000 small cap stocks, 1,244 are selected for social investing. The percentage of stocks selected from each market cap index ranges from about 62 percent to 64 percent.

    To select the stocks, KLD assigns ESG scores to each company for Environmental, Social, and Governance practices. Then the stocks are arranged in sectors. From each sector, the top 60 percent of stocks are selected based on ESG scores (the press release says KLD targets the top 65 percent).

    In the screening process, adverse weight is given to participation in “certain business activities, such as the manufacture of alcohol, tobacco products or weapons.” Instead of applying a zero-tolerance policy with respect to these business practices, the KLD Broad Market system screens out a certain “threshold” of activity.

    “KLD has expanded its ESG analytical framework so that its rating system reflects the social and environmental impact of the production and sale of alcohol, tobacco products, military and civilian weapons, nuclear power and gambling products and services,” says the press release.

    Due to the introduction of new indexes and a lowering of the market capitalization targets, the total number of companies in the BMSI series of indexes has decreased. However, due to the modification of exclusionary screens, KLD has a larger pool of companies to select from in sectors such as industrials (previously subject to military weapons exclusions), utilities (nuclear power), consumer staples (alcohol) and consumer discretionary (gambling). This expansion of the pool of eligible companies has led to an increase in the average ESG performance of companies in the BMSI series.

    “Companies with strong ESG performance are no longer automatically excluded for minor involvement in a screened activity,” said Thomas Kuh. “As more investors consider ESG factors, the KLD Broad Market Social Index series enables investment managers to provide their clients with greater market cap segmentation and holdings with higher ESG performance.”

    After the KLD Broad Market Social Index is constructed, it is deconstructed into two “composite indexes.” First, the “social selections” from the mid-cap stocks are combined with the “social selections” from the large cap stocks to produce a composite large-mid index of 631 social stocks (LMSI: 63.1 percent of 1,000 stocks).

    Next, the social stocks from the mid caps are combined with the social stocks from the small caps to make a composite small-mid index of 1,628 stocks (SMSI: 62.6 percent of 2,600 stocks).

    In the end, here were the top ten large-cap stocks designated as KLD social in July 2008: Microsoft Corp., Procter & Gamble Co., Johnson & Johnson, IBM, Cisco Systems, Google Inc., Intel, Bank of America, Hewlett-Packard Co., and Pepsico.

    Here were the top ten mid-cap stocks: Petrohawk Energy Corp., NYMEX Holdings, Inc., Helmerich & Payne, Inc., Steel Dynamics, Inc., SandRidge Energy, Inc., BMC Software, Inc., The Estee Lauder Co’s Inc., Mattel, Inc., Cabot Oil & Gas Corp., and Embarq Corp.

    And here were the top ten small-caps: Dril-Quip, Inc., Delta Petroleum Corp., ADC Telecommunications, Inc., Nicor, Inc., Swift Energy Company, Complete Production Services, Inc., Potlatch Corp., EMCOR Group, Inc., American Superconductor Corp., and Goodrich Petroleum Corp.

    Disclosure: the author owns shares of both social choice products from TIAA-CREF.

  • Domini 400 @ Green Century Equity Fund

    According to the Green Century Equity Fund (GCEQX) profile at Yahoo Finance, the fund’s date of inception was Sept. 13, 1995.

    “The Fund seeks to achieve its objective by investing in the stocks which make up the Domini 400 Social Index (the KLD 400 Index),” says the 2-page Fund Brief posted at greencentury.com.

    For more info on the history and nature of the Domini 400 Social Index, see the article below on Social Investing with ETF Funds.

    The GCEQX fund’s administrator and advisor, Green Century Capital Management, was founded in 1991 “by a partnership of non-profit environmental advocacy organizations,” says the Fund Brief. As a result of this legacy:

  • “100% of the profits earned on the fees Green Century Capital Management receives for managing the Fund belong to these organizations and are available to fund the environmental and public interest advocacy work they perform.”
  • “The non-profits seek to preserve and protect the environment by campaigning for the conservation of clean air, clean water, and open space; filing lawsuits against companies that pollute illegally; and advocating for lower use of toxic chemicals and the reduction of greenhouse gases causing global warming.”

  • Social Investing with ETF Funds: DSI and KLD

    Summary: KLD excludes tobacco. DSI excludes tobacco, alcohol, firearms, military weapons, gambling, and nuclear power.

    By Greg Moses

    According to background materials posted at Domini.Com, the first “social index” for investors was rolled out in 1990 by Amy Domini and her partners, Peter Kinder and Steve Lydenberg.

    The Domini 400 Social Index was “an index of 400 primarily large-cap U.S. corporations, roughly comparable to the S&P 500, selected based on a wide range of social and environmental standards.”

    Today Domini and Lydenberg oversee a half-dozen mutual funds at Domini Social Investments, while their original indexing partner Kinder continues to manage the Domini 400 Social Index (DS400) at KLD Research & Analytics, Inc. (kld.com).

    In addition to the DS400 index, KLD offers a half dozen Sustainability Indexes (which they properly call Indices) and the KLD Select Social Index.

    KLD also offers a research service with searchable databases for investors who want to keep tabs on “the social, environmental, and governance (ESG) performance of corporations.”

    Jan. 24, 2005 was the inception date for an Exchange Traded Fund (ETF) based on the KLD Select Social Index. It is offered by iShares under the ticker symbol KLD. According to the fact sheet for the KLD ETF, the index underlying the fund is comprised of about 250 companies selected from the S&P 900 on the basis of “ESG scores” –tobacco companies excluded.

    On Nov. 14, 2006, iShares followed up with an ETF based on the Domini 400 Social Index (DSI). The fact sheet for the iShares KLD Social 400 ETF says that 250 of the companies in the index come from the S&P 500. To these companies are added another 100 large and mid-sized companies along with 50 smaller ones.

    The fact sheet for the KLD Domini Social 400 Index that underlies DSI shows that the negative screen is more demanding than with the KLD Select Social Index that underlies KLD. KLD excludes tobacco. But DSI also excludes “companies engaged beyond specific levels of involvement in Firearms, Alcohol, Military Weapons, Gambling, and Nuclear Power.”

    As of July 2, 2009, the portfolio tracker at MarketWatch.Com reported that KLD had an average volume of 19.6k per day, whereas DSI had an average volume of 7.70k.

    Disclosure: the author owns some shares of DSI.