The investment philosophy is another way. You might want to look at a fund that specializes in small companies or one that invests in larger, more stable companies, or ones that are contrarian, that look for companies that are out of favor. It depends on what philosophy you are most comfortable with. The third reason is that you like the fund manager. CUE: What is the minimum investment? DODSON: Minimums vary. In some you can start with as little as $100 or $200. Most require $1,000 to several thousand, some as high as $25,000. Typically they are below $5,000. CUE: Do mutual funds charge fees? DODSON: It depends on the type. There used to be pretty clearly two types: a load fund and a no-load fund. A load fund was sold by a broker. The load was compensation for the broker's time looking for a fund, explaining it to you, or giving you service. Typically the load was 8-1 /2 percent. The no-load fund didn't have any sales charge. The fund was sold through ads in the paper and things like that. More recently, this has been breaking down and they have what they call low-load funds, which is 3 percent or less. They also have what is called a 12b-l charge in which the fund takes a percentage of the assets each year. You may say that's not so bad, but one-half of a percent per year begins to add up for the long-term investor. There is also what they call a redemption charge or back end load. To redeem your shares you have to pay a fee. It's hard to say which is the best, but you should be aware of all the different kinds. CUE: What's involved in adding the use of social criteria to a mutual fund? DODSON: It does create a lot of work. You have to investigate things like a company's environmental protection policy, if they are defense department contractors, if they discriminate against minorities. You get some of that from government reports. Investor newsletters like Insight have good information. Most of the funds do the research themselves. CUE: At Working Assets you said you excluded certain things such as weapons manufacturers. At Parnassus, you take the other approach and look for positive attributes. DODSON: Right. At Working Assets they don't go out and visit companies. They use government reports. I am more interested in the intangible qualities, like how a company treats its employees, than the negative one of whether they violated the National Labor Relations Act. Just tecause a company hasn't violated that act, doesn't mean it's a good company as far as labor relations go. CUE: How do you feel about the view that using social criteria automatically reduces your return? DODSON: In theory it does, because if you exclude certain investments, you don't have as many investment opportunities. There are still enough investments around to be able to get a return as good as any other fund. CUE: Are socially responsible investment funds doing just as well financially as other funds? DODSON: Over the past couple of years they have been doing just as well. CUE: Do you think that over time they may do better because they use a social criteria? DODSON: That's quite controversial. I think it is true myself, but I wouldn't want to push it too far. If you take an example, say Delta Airlines versus United. Both are successful and quite large. United treats people like automatons. They are not a very enlightened employer, they are very hierarchical. Delta treats their employees very well. At the Christmas rush you will see executives moving baggage. You would never see that at United. I would invest in Delta. In the long run I think Delta will do better because of the support of its employees. They are going to work harder and there will be good labor relations. It's going to be a much better operation. Now you look at United; it's large and they have done very well, but over time Delta has been more profitable. When the executives and management are more enlightened, they are going to do better. I don't have a study to back it up, that's my opinion. I want to see if in the long run—three or four years—I will be able to get a return better than the market averages by using this social investment philosophy. 4 Jerome Dodson. Photo by Janet Fries. Page 11
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