The NFP portfolios are a series of active, passive and
blended models created through tactically-weighted asset allocation of
proprietary and non-proprietary mutual funds and ETFs. Both mutual funds and ETFs in the NFP portfolios seek to emphasize
consistent and competitive performance while managing volatility and risk.
FDx Advisors, a subsidiary of FolioDynamix, provides research,
investment models and advisory programs to the registered investment adviser
(RIA), independent broker/dealer and trust institution markets.
Socially responsible investing is no longer just a matter of screening out companies with interests in the “big five” industries—alcohol, tobacco, gambling, pornography and firearms.
While such companies historically sparked the ire of
socially responsible investors, Jason Baron, a senior vice president and
portfolio manager at U.S. Trust, says more sophisticated strategies are
redefining what it means to invest with the greater good in mind.
Techniques being rolled out by Baron’s firm and others can help investors improve returns and assess a portfolio’s
social and environmental footprint: Baron calls this “socially innovative investing.”
One strategy takes an investment universe, such as
the Standard & Poor’s (S&P) 500, and utilizes computer programs to rate companies
according to a long list of social factors—anything from the diversity
of a board of directors to the carbon footprint of a company’s supply chain. Firms that score poorly in one or more categories are eliminated from the model portfolio.
“Companies that
remain committed to these principles not only meet the criteria of ethically minded
investors, but they also stand to benefit financially,” Baron says.
That is because companies that consider these factors, on
U.S. Trust’s analysis, are better positioned in general to succeed in the
modern economy—especially as water scarcity, food availability and other geopolitical issues are exacerbated by growth of the
global middle class.
Baron conceded that making stock selections in this way can significantly
increase tracking errors in a portfolio—especially when an investor uses a
traditional market-capitalization approach to asset allocation. But that is
where modern computing technology enters the picture.
By
using “portfolio optimizer” technology, Baron says, an investor can compensate
for such tracking errors and develop an ethically constructed portfolio with
the same or lower risk than the underlying market-cap-weighted index, with the
same or better returns.
Baron says the market for socially responsible investing (SRI)
reached $3.7 trillion in 2010 and continues to grow, especially among
women. In a U.S. Trust survey, 65% of female respondents said social, political and environmental factors are “somewhat” or “extremely”
important in investment decisionmaking, compared with 45% of men surveyed.
The same survey found that just 25% of investors have
screened their portfolio to analyze its social impact.
“We’ve seen that women generally have stronger feelings
about the importance of socially minded investing,” Baron says. “They seem to
be more willing to take on risk to get socially innovative investments.”