December 2009 Newsletter

December 2009 Newsletter

News & Commentaries by Ron Robins


Do Socially Responsible Funds Carry More Governance Risk? Study Says Yes. [COMMENTARY]“According to the firm Audit Integrity, if you take two socially responsible funds as an example it appears that their ’socially responsible’ holdings contain companies who practice some pretty risky… aggressive accounting or corporate governance [practices]… “ Well, many might ask how can this be? Without knowing all the facts, it is possible that SRI ratings companies might not fully consider a company’s accounting practices.

Also, SRI funds often have proportionately higher holdings of financials and tech stocks than most ’conventional’ funds. As we know from the recent financial meltdown and the dotcom bubble some years back, accounting practices in these groups can sometimes be questionable. Ethical investors may want to quiz their fund managers on this topic!
Audit Integrity: ’Socially Responsible’ Companies Have Worse Accounting Practices Than Normal Ones, by Vincent Fernando, December 28, 2009, The Business Insider, USA.

Goldman Sachs & Other Financial Firms Bet Against Client Positions–And Won. [COMMENTARY]“… authorities appear to be looking at whether securities laws or rules of fair dealing were violated by firms that created and sold these mortgage-linked debt instruments and then bet against the clients who purchased them…” Goldman and many other Wall Street firms created, bundled, and sold hundreds of billions of dollars of mortgage backed securities (MBS). Then, unbeknownst to clients, acting as principals, they bet-against (shorted) what their clients’ were holding and made countless billions in profits.

To me it is fair game that financial firms can bet against products they create and sell. After all, most of these clients are professional, astute, and sophisticated investors. HOWEVER, in the interests of fairness and ethics, they should make transparent to these clients, and perhaps to the public at large, their contrarian position. It is the same principle as when interviewers ask analysts if they own any stock in the company they are recommending. Full disclosure needs to be enforced, as it is when you buy any new stock or fund.
Banks That Bundled Bad Debt Also Bet Against It, by Gretchen Morgenson and Louise Story, December 23, 2009, The New York Times, USA.

ING Internet Poll: 43% Of Investors Willing To Give Up Some Profits To Invest In A Socially Responsible Way.[COMMENTARY]The misunderstanding that ethical investing means lower returns is deeply entrenched in the mass psyche. This is probably the biggest impediment to converting what we know is widespread desire to invest ethically into getting investors to actually do so. Need I say it, but most research studies over the past decade studying ethical portfolio returns most commonly show that they provide similar returns to conventional portfolios.
How much return would you give up to invest in socially responsible (ethical) funds? eZonomics Polls, December 17, 2009.

More S&P 100 Companies Reporting On ESG Issues. [COMMENTARY]“The number of S&P 100 companies producing sustainability reports with performance data jumped by more than a third in the past year, according to a new report from the Sustainable Investment Research Analyst Network (SIRAN), a working group of the Social Investment Forum (SIF).” The upward trend among the larger western companies to report on ESG issues continues to grow. It is clear that many companies believe by publishing such information they might get greater buying interest in their stock. It is a win for the company as well as for ethical investors.
Number of S&P 100 Firms Producing Sustainability Reports Jumps by More Than a Third; Nearly All Offer Some Sustainability Informat, December 17, 2009, press release, Social Investment Forum (SIF) and the Sustainable Investment Research Analyst Network (SIRAN), USA.

Survey Reveals Failure Of UK Finance Firms To Reform. [COMMENTARY]“Research by Co-operative Asset Management, one of the UK’s leading socially responsible investment managers, found remuneration policy had gone in the wrong direction at half of the 30 finance companies in the FTSE 350. Behaviour was slightly worse in the financial sector than in a comparison of 30 non-financial organisations, where 14 companies were found wanting.” My guess is that these findings are true at the majority of financial firms around the world.
Executive pay: Co-op report reveals failure of firms to reform, by Ruth Sunderland, December 13, 2009, The Observer, UK.

New US Catholic, Methodist, & Christian Faith Based ETFs Launched. [COMMENTARY]“Industry newcomer FaithShares Trust released its first three ETFS targeting Christians: FaithShares Catholic Values; FaithShares Methodist Values; and FaithShares Christian Values. FTSE Group and KLD Research & Analytics, which specializes in socially responsible investing, developed the underlying indexes.” These new funds are a sign of growing interest in faith based ETFs.
FaithShares Christens Religious ETFs by Trang Ho, December 9, 2009,Investor’s Business Daily, USA.

China Second Most Attractive Place For Green Investment. [COMMENTARY]“China has overtaken Germany to become the second most attractive country in the world in which
to invest in renewable energy projects, Ernst & Young said Monday in its latest global renewable energy country attractiveness index. China, which is ranked just behind the
U.S., has moved up the index driven by relaxation of restrictions on the amount of non-domestic components used in renewable generation technologies, increased subsidies for solar and a recently announced plan to lower its carbon intensity.”
The question is how do you invest in China? If interested, talk to your advisor for possible stocks that are good to invest in for that market.
China Now 2nd Most Attractive Place For Green Investment-Report, by Selina Williams, December 6, 2009, Dow Jones News Wires, UK.

Social Investment Forum Survey Says US Investment Consultants Say Responsible/ESG Investing Here To Stay. [COMMENTARY]“U.S. investment consultants believe that the growing interest of their clients in environmental, social and governance (ESG)/responsible investing issues is not going to be a short-lived phenomenon: Nearly nine out of 10 (88 percent) believe that client interest in ESG will continue to grow over the
next three years, and none believe it will decrease, according to a new survey conducted by the Social Investment Forum and Pensions & Investments.”
This poll specifically deals with the US and complements the Eurosif survey below.
Social Investment Forum: Nearly All U.S. Investment Consultants Surveyed Agree Responsible/ESG Investing is Here to Stay, press release, December 2, 2009, Social Investment Forum, USA.

Only Two Canadian Oil Sands Operations In Alberta Meet Government Rules For Liquid Tailings. [COMMENTARY]“The review conducted by the Pembina Institute and
Water Matters found that only two oil sands operations reported they would meet the rules to reduce toxic tailings between 2011 and 2013 (the start date for binding rules to capture and start solidifying liquid tailings). The seven remaining operations submitted plans that
will not comply with rules for reducing their production of liquid tailings by the first target date in 2011. Some companies submitted plans suggesting they may not meet the rules
for tailings management for over 40 years.”
Ethical investors should read this information and note that some ethical funds may also be investing in these operations as well.
Only two oil sands operations set to meet rules to deal with liquid tailings, press release, December 1, 2009, Pembina Institute, Canada.

New Editorial

‘Best In Class′ Focus Provides Premium Returns, by Ron Robins, December 22, 2009.

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