Socially Responsible Investing (SRI) is financially irresponsible, writes CNBC mutual funds columnist Tim Middleton. The Domini Social Equity Fund, an index of 400 most socially conscious companies, ranks in the 88th percentile of comparable funds over the past 12 months. The downfall of SRI in recent years has been its concentration on three sectors: tech, health care, and financial services. In contrast, a vice fund made up of gun makers, liquor, tobacco and gambling stocks is performing in the top 2% of its peer group.
SRI fund criteria are highly questionable. For instance, at one time Enron had the heaviest weighting among SRI-approved energy companies, because of its lobbying for CO2 emissions controls. The primary source of its earnings was still burning fossil fuels. Can Cemex, a giant cement maker, really be considered “environmentally friendly?” The financial services stocks in the SRI portfolio provide financing to the naughty companies excluded from it. Absurdly, Starbucks was recently ejected from SRI portfolios because a minor licensed product contains liqueur.