New York Times Mutual Fund Study

In 1993, the New York Times initiated a 7-year study of mutual fund investment approaches. The paper asked five of the nation’s leading investment advisers to design model portfolios for a hypothetical investor having $50,000 and 20 years to go until retirement.

Jack Brill, founder and Advisor Emeritus of Natural Investments (Natural Investment Services at the time), was asked to participate, along with four other highly regarded investment professionals. On the heels of his first book, Investing From the Heart, Jack was the only socially responsible investment (SRI) advisor in the competition.

As such, whereas the other four advisors had access to the entire investment universe, Jack’s portfolio used only socially screened mutual funds; back in 1993, there were only 20 SRI funds available! While we always maintained that this would not limit opportunities for successful results (and we appreciate today’s array of 200 funds), skepticism about SRI was the prevailing attitude at that time.

During the course of the study, the Times published a quarterly article detailing the investment process of each adviser and comparing their quarterly and cumulative performance. Beginning July 1, 1993 and ending 28 quarters later on June 30, 2000, the landmark study served as a high profile opportunity to highlight both SRI funds’ competitive returns and Jack’s success as an investment advisor.

Initially, Jack’s portfolio lagged behind the others, due in part to the underperformance of an environmental sector fund and a short-lived market-timing fund that misgauged the strength of the developing bull market. However, over the course of the study, Jack’s SRI portfolio moved steadily up in the standings. Many new socially screened mutual funds were introduced during the 1990’s, and with the two early disappointing funds replaced, his returns dramatically improved.

Halfway into the contest, beginning on January 1, 1997, Jack’s portfolio became the best performer. From that point through the end of the study in 2000, his portfolio achieved an annualized rate of return of 27%, while the others posted gains of only 14% to 22%. During the same period, the S&P 500 Index gained 24%. For the entire study, Jack had 10 winning quarters, more than any of his competitors.

As you can see from the chart below of final performance, Jack’s portfolio was extremely competitive over the 7-year period. The annualized total returns for the top three contenders were extremely close. This is significant because Jack’s portfolio, the only one to have 15% of the assets in bonds, was more conservative than the others. Because of that approach, the final results placed Jack in 3rd place with an annualized gain of 17%, only 0.24% behind the 2nd place portfolio and 0.55% below the top portfolio.

Note: The S&P 500 gained 18.13% (annualized) for the period of the study.

The final results surprised many skeptics, who had predicted that an exclusively socially responsible portfolio was destined to under-perform the others because social screening limited the available investment opportunities. Yet Jack contended that social screening enhances investment performance because it identifies companies that are well-managed, caring employers that avoid regulatory and legal liabilities while producing goods and services needed to create a healthier and more sustainable society.

The Times series proved that Natural Investors face the same challenges and have the same opportunities as other investors, and that the integration of social, environmental, and governance factors into one’s investment criteria can yield comparable financial returns.

This important study helped squelch the critics of socially responsible investing and led to the tremendous surge of new SRI funds over the past 7 years. It also spawned our successful book, Investing With Your Values: Making Money and Making a Difference (New Society, 2000). The study played an important role in showing the obsolescence of Wall Street’s flawed logic of making money in any way possible, regardless of effects on communities or the planet. Indeed, Jack proved once and for all that it was possible to make money and make a difference.

Past performance is no guarantee of future results. These results may not be repeatable.

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