GOOD corporate citizens are good investments, say Janet Prindle and Arthur Moretti, co-managers of the $90 million Neuberger Berman Socially Responsive fund.
In the fund's eyes, good citizenship can mean helping protect the environment, promoting workplace diversity and offering employee benefits like flexible work schedules and on-site day care. The fund shuns companies that produce tobacco, alcohol, weapons and nuclear power.
"We don't think we give up anything in the way of return by using social criteria" in choosing stocks, Ms. Prindle said from her office in Midtown Manhattan.
Investors seem to agree. In 1980, there were just two so-called socially responsible mutual funds, holding $66 million in assets; today, 77 funds manage more than $12 billion, according to Morningstar,
The Neuberger fund lost 3.7 percent a year, on average, for the three years through Thursday, placing it among the top 5 percent of all large blend funds, which own a mix of growth and value stocks. The group lost 13.1 percent, on average, during that time, while the Standard & Poor's 500-stock index was down 13.4 percent, annualized.
The fund lost 11.5 percent in the last 12 months, versus losses of 22.2 percent for its group and 22.5 percent for the index.
Ms. Prindle, 66, has managed the fund since its inception in 1990 and also manages about $400 million in socially responsible investments for Neuberger Berman Management, the fund's adviser. Mr. Moretti, 39, joined the fund in June 2001.
The managers select the 25 to 35 stocks in the fund from about 1,800 mostly American companies with market capitalizations of more than $1 billion. Their social screens eliminate about 150 companies, they said.
Ideally, the managers "are buyers of value and sellers of growth," Mr. Moretti said, meaning the fund aims to buy what it considers solid-growth companies when shares sell cheaply.
In choosing possible purchases, the managers screen for companies with strong balance sheets, specifically, in the top quarter of their industry group based on their ratio of debt to total capitalization and other factors. They seek companies with above-average 12-month earnings forecasts relative to their own history, their competitors and the S.& P. 500, as well as strong earnings over a full industry cycle.
The managers also look for companies that have recently changed management or offer new products or services. And they watch for specific opportunities in companies they are considering — for example, when a stock price has dropped 10 to 15 percent in a single day.
The managers use internal research, outside consultants and government information to determine companies' records on social issues, like family and work benefits, charitable giving and community partnerships, Ms. Prindle said.
The managers have owned shares of Johnson & Johnson since 1997 and bought more last July. They have paid $35.15 a share, on average, adjusted for stock splits, for the position; the stock now trades at $53.48. The company's diversity of businesses, in consumer goods, medical devices and pharmaceuticals, has created stable earnings growth, Mr. Moretti said. The company offers excellent benefits for working women, including flexible hours, Ms. Prindle added, and is a leader in environmental protection.
They also like the KeySpan Corporation, the largest distributor of natural gas in the Northeast, with 2.5 million customers in New York City, Long Island and New England. The fund paid $28.14, on average, for its shares; they now trade at $32.11. KeySpan, which has investments in more than 100 companies, also operates electricity generating plants on Long Island and in New York City.
Besides having good long-term growth prospects in its service areas, it has a sound environmental record and good community relations that let it build projects quickly, Ms. Prindle said.
ANOTHER holding is Praxair,
a company in Danbury, Conn., that supplies gases used in industrial processing
and health care. Its customers typically sign long-term contracts, giving the
company predictable earnings, Mr. Moretti said. It is a leader in making
chemicals used to reduce emissions in refining gasoline, he added. Praxair also
has an excellent safety record, Ms. Prindle said, and employment policies that
include job sharing and paternity leave.
The fund began buying shares in March, paying $57.23, on average; they now trade at $53.08.