As the News Corp. (NWS) scandal continues to blaze across two continents, we are reminded that there is a sad line of companies that appeared to be doing well but there was something rotten underneath that eventually rose to the surface.
As a contrast, Andrew Tonner picks 10 stocks listed by the global think tank Ethisphere, which publishes an annual list of what it considers to be the most ethical companies. Companies receive their ratings based on their overall score in four categories: Ethics and compliance programs; reputation, leadership, and innovation; governance; and corporate citizenship and responsibility.
His point is that since 2007, the companies making Ethisphere's list have beaten the market, declining less than the S&P 500 as the world imploded in 2008 and leaving it in the dust on its way up since then. He picks 10 from the list that are a great price.
- Gap (GPS)
- Dun & Bradstreet (DNB)
- Adobe Systems (ADBE)
- Microsoft (MSFT)
- Xerox (XRX)
- Texas Instruments (TXN)
- Hartford Financial Services (HIG)
- Aflac (AFL)
- Best Buy (BBY)
- Cisco (CSCO)
This is a novel way of selecting companies and there is something good about investing into ethical companies. The question is whether you are rewarded by this stance financially.
We will compare this with our reference ETF dividend portfolio, which is blind in the sense that it invests in the whole market and focuses neither on saints nor sinners.
| Asset | Fund in this portfolio |
|---|---|
| REAL ESTATE | ICF (iShares Cohen & Steers Realty Majors) |
| CASH | CASH |
| FIXED INCOME | TIP (iShares Barclays TIPS Bond) |
| Emerging Market | VWO (Vanguard Emerging Markets Stock ETF) |
| US EQUITY | DVY (iShares Dow Jones Select Dividend Index) |
| US EQUITY | VIG (Vanguard Dividend Appreciation ETF) |
| INTERNATIONAL EQUITY | IDV (iShares Dow Jones Intl Select Div Idx) |
| High Yield Bond | HYG (iShares iBoxx $ High Yield Corporate Bd) |
| INTERNATIONAL BONDS | EMB (iShares JPMorgan USD Emerg Markets Bond) |
- 10 Stocks With a Conscience -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
| Portfolio/Fund Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| 10 Stocks With a Conscience | 1% | 8% | -6% | -18% | -1% | -6% |
| Retirement Income ETFs Strategic Asset Allocation Moderate | 17% | 155% | 6% | 33% | 5% | 27% |
| Retirement Income ETFs Tactical Asset Allocation Moderate | 14% | 155% | 12% | 93% | 11% | 79% |
Three-Month Chart (click all to enlarge) One Year Chart
Three-Year Chart
Five-Year Chart
Sadly, this portfolio has not performed well. One would like to think that ethical companies would perform well as they meet all the standards of governance as well as social responsibility. We will continue to look for other selections of ethical companies but this is not a selection that can be recommended.
