Pax World Funds Rethinks its Brand of "Socially Responsible Investing"

 |  Includes: KLD, PBW, SBUX
by: Jonathan Liss

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Pax May Bless Some 'Sin' Stocks

  • Summary: Socially responsible investment funds generally avoid what are referred to as "sin stocks" -- company that profit off of gambling, tobacco, firearms and an array of other industries linked to social ills. Now, Pax World Funds, one of the largest members of the "socially responsible mutual fund family" is rethinking that strategy after their Pax World Balanced Fund has returned only 4% in the 12 months through July, trailing more than half its peers. Making matters worse, funds like Vice Fund -- which actively seeks out sin stocks -- have handily beaten most SRI funds recently posting a 20% average annual return over the last three years. Pax is considering lifting its "zero tolerance" policy against alcohol and gambling, choosing instead to look at a company's entire "social responsibility profile. One example of why Pax is rethinking their 30-year old investment strategy: Pax was forced to sell a lucrative stake in Starbucks Corp. (NASDAQ:SBUX) last year when the company set up a deal to launch a coffee liqueur with whiskey maker Jim Beam. The funds' 375,000 shares were valued at $23.4 million at the time, and had to be relinquished even though some SRI researchers estimate liquor-related sales contributed less than 1% to Starbucks's revenue. Shares of SBUX are up nearly 25% since Pax sold them.
  • Comment on related stocks/ETFs: Market Participant looks closer at why socially responsible ETFs have failed to yield significant returns. Here's a more positive look at the potential offered by the iShares KLD Select Social Index Fund (NYSEARCA:KLD).