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 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.
3 comments:
I think that ethic is often confused with preference. Not investing in tobacco stocks is a preference. Voting for a politician is a preference. Following the Ten Commandments is an ethic.
Foisting you preferences upon others does not meet the standard of ethical conduct. Yet, I admit that in many of life's instances, preference and ethics may inhabit grey areas.
Roger's mission to provide a successful avenue for clients to meet their preference ($$ at retirement, for instance)should not be judged as an ethical exercise. Investing is a preferential, not an ethical task.
T
An interesting portfolio would be half sin/bad-for-you holdings and half healthcare holdings.
T, I posted the question the other day. The specific article I referenced was concerning the enslavement of people to work on fishing boats that were delivering product for sale to New Zealand. This is happening with the knowledge of the New Zealand government, or else the article would not have existed in Bloomberg. I agree with your assessment about preferential investing, and endorse Rogers approach. Drinking coke and smoking tobacco may be self destructive, but are legal. But don't you think ethics need to be factored at some level into your decision making. Would you endorse organ harvesting as an investment preference, rather than ethical exercise? I'm sure that where you draw the line will vary with each person, but i would expect that slavery, murder, and trafficking in people would be common ground that everyone could accept as unethical behavior, not investor preference.
Roger, thanks for the comments. No surprises in your answers, either.
Sam
Post a Comment