Domini Pioneers 'Do-Good' Investing
Sunday August 19 10:15 AM ET
By Elizabeth Lazarowitz
NEW YORK (Reuters) - Saving rain forests and snuffing out cigarette smoking usually don't make Wall Street's priority list, but Amy Domini has made it her mission to turn money-grubbers into do-gooders.
Domini, 51, founder and managing principal of the largest U.S. socially responsible stock fund, the $1.3 billion Domini Social Equity Fund (Nasdaq:DSEFX - news), puts the onus of righting social wrongs on the financial world.
``I'm introducing a sense of guilt,'' she says. ``I'm pointing the finger at Wall Street and saying we can no longer expect that we're both going to have a pleasant future and care about nothing but making money for our shareholders.''
Domini's fund, which celebrated its 10-year anniversary in June, uses social ``screens'' to weed out companies involved in tobacco, alcohol, nuclear power, gambling and weapons production.
The screens also help pinpoint companies that promote diversity and environmental issues, as well as those that pay fair wages and support human rights when they operate in less developed countries.
Investors have shown a keen interest in funds that provide such filters. Assets in socially screened mutual funds exploded to $154 billion in 1999 from just $12 billion in 1995, according to the Social Investment Forum, which tracks socially responsible funds. During the same period, the number of funds in that category rose to 175 from 55.
Being politically correct doesn't mean investors have to give up profits, Domini says. Her fund has returned about 14 percent annually in the last five years, matching the Standard & Poor's 500 index (^SPX - news), according to fund research firm Morningstar. The fund is down 8.7 percent for the year to date, slightly outperforming the index.
The high-tech industry's stock market downturn has put a drag on Domini's fund performance -- and also, she admits, created a challenge for its social-selection process.
Microsoft Corp. (Nasdaq:MSFT - news), which comprises 6.2 percent of the fund's total assets, has been particularly troublesome. Not only has it dropped some 44 percent in the last 19 months, but its battle with anti-trust regulators has raised questions about the company's conduct, bringing to mind the image of a schoolyard bully pushing its smaller competitors out of the market.
A U.S. appeals court concluded that Microsoft holds a monopoly in personal computer operating systems and used illegal tactics to defend it, but reversed an earlier order to split the company in two.
``We do feel the company should have been divided, and I think it's an incredible statement on the ego of Bill Gates (news - web sites) that he doesn't,'' Domini said in her soft-spoken but straight-forward way. She added, however, that it is hard to say if its actions harmed the consumer. ``We have a very uneasy peace with Microsoft, but have continued to hold it.''
Domini bought Microsoft in December 1996 at a split-adjusted price of $19.60, after she had avoided the stock because of its business relations with South Africa under the country's apartheid government.
Despite these concerns, Microsoft has been popular among socially conscious investors because of its record on environmental issues and an employee stock-purchase plan that made many of its employees wealthy.
GROWING UP GOOD
Domini, who grew up in rural Newtown, Conn., was no stranger to the concept of doing good. Her parents met in Italy after World War II when her mother, fresh out of college, went to Europe as a volunteer helping war orphans.
Her biggest influence, however, was coming of age in the Civil Rights/Vietnam War era, when social activism came to the forefront of American culture.
``She's not somebody that would be at the head of a rally or demonstration,'' said Julie Goodridge, president of NorthStar Asset Management, which manages a total $55 million for socially minded private investors. ``But she is extremely driven and devotes herself almost entirely to her work.''
After graduating from Boston University in 1973, Domini worked her way up from photocopy clerk to stock broker, and soon discovered what would become her life's work.
The turning point came, Domini said, when she was asked to promote a company's stock to clients after it had just won a big military contract. This came in the wake of the controversial draft lottery, when some of Domini's male friends faced either the war in Vietnam or exile as draft-dodgers.
By 1984, she had written one of the first books on socially conscious investing, ``Ethical Investing.''
In choosing stocks, Domini says she tries to take the ''better half'' of each industry. She was drawn to Home Depot Inc. (NYSE:HD - news), the world's largest home improvement retailer, because it built its business on empowering customers to do home-related projects on their own. She bought the stock at a split-adjusted price of $4.33 at the fund's inception in June 1991.
Some of its policies, like highlighting environmentally sound products, make it worth keeping, Domini says -- not to mention the fact the stock has posted an annual average growth rate of about 27 percent over the last 10 years.
Performance isn't everything, though. In February, the fund cut Wal-Mart Stores Inc. (NYSE:WMT - news) from its portfolio, citing concerns about the company's labor and human rights policies abroad. The world's largest retailer has recently been the target of a series of lawsuits concerning its labor practices.
Medical products maker Stryker Corp. (NYSE:SYK - news), another holding she bought at the fund's debut in 1991, reflects Domini's interest in ``healthcare that deals with the idea that we're all going to be playing tennis until we're 90,'' such as joint replacements and less-invasive surgery.
Domini worries about the economy in the next 10 years, with U.S. growth resting on the shoulders of the consumer, while the bulk of wealth goes to a small group, whose spending will have a lesser impact on the economy.
``We've built a society that is unsustainable economically, and I'm putting that message out to ... people who think that a rising tide lifts all ships,'' Domini said. |
