Seeking Alpha
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A reader asks;

How do you factor in ethics when evaluating portfolio choices?

Things like ethics or anything that might fall even remotely under the header of socially responsible investing should be a personal decision based on priorities of the investor. In my opinion there is no single right answer; one person cannot say what is right for another.

My own view on this must be from where I sit as a portfolio manager. I perceive my job as trying to give clients the best chance they can get of having enough when they need it and also to try to protect assets when that appears to be warranted.

Very anecdotally speaking, it seems as though most socially responsible funds lag the market pretty consistently. I'm sure there are exceptions. While I can't be certain as to why this might be, I do know that the tobacco stock and liquor stock we use in "large" client portfolios have done pretty well over the long term. The nature of the demand for the product makes them steady performers and future prospects look good in my opinion. I'm pretty sure tobacco and booze are no-nos in SRI funds.

If a portfolio manager makes the decision to omit a tobacco stock because of his beliefs about the tobacco industry then he is projecting his beliefs onto his clients and, very subjectively speaking, I don't think that is right. If a client tells us no tobacco, that is his belief not mine and we can accommodate that type of request with the proper paperwork.

I've read some literature on smoking and it turns out it is a very unhealthy habit (old joke of mine), I will never be a smoker and I wish everyone I know who does smoke would quit, but my view on the demand for the product makes me think they are a must own. Likewise booze and weapons. We don't have gambling exposure, not because I am not a gambler (I don't even like March Madness pools) but because I view the volatility characteristics of the stocks as being relatively unfavorable for now--we did own IGT for a short time many years ago.

I'm not sure whether my view here is unique (although I doubt it), but this was a good question because the topic doesn't come up often except from people who run SRI funds.

Source: The Role Of Ethics In Portfolio Construction