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January 28, 2003
SRI Investors Find Managers Funds Meets Current Income Requirements
by William Baue
The mortgage-backed securities in the Managers Funds Short Duration Government Fund help it achieve
solid financial performance.
SocialFunds.com --
Some investors want to limit their investments in the stock market but still receive higher rates
of return than a money market fund provides. These investors can find some alternatives in
government bond funds, which primarily invest in U.S. Treasury securities. The Managers Funds Short Duration Government Fund (ticker:
MGSDX) approaches this type of investment differently. It focuses on high credit quality (AAA)
U.S. government agency mortgage bonds, such as Fannie Mae (FNM), to approximate the
six-month Treasury Bill.
 Social investors who are concerned about
investing in Treasury securities because they help to fund the Defense Department may be
particularly attracted to the Managers Funds. Although the Managers Funds, based in Norwalk,
Connecticut, does not consider itself a purveyor of SRI funds, it distinguishes itself by choosing
outside managers with excellent reputations. The Short Duration Government Fund has been managed
since its 1992 inception by Daniel Dektar of Smith Breeden Associates.
"We do not
specifically target social responsibility in the management of this fund; we target total return
and overall risk," explained Managers Funds Director of Research Tom Hoffman. "However, this fund
typically fits well into a socially responsible portfolio because it is primarily invested in
mortgage-backed securities."
Social investors value mortgage-backed securities (MBSs)
because they support a clear social good: housing. Managers Funds values MBSs because they allow
the subadviser to generate relatively high current income while maintaining relatively low
volatility.
"In order to manage the interest rate risk, the fund's subadvisers use
Treasury futures to realign the portfolio duration," Mr. Hoffman told SocialFunds.com. "As it so
happens, our use of Treasury futures is typically as a short position. That is, we are contracting
to sell Treasuries in the future. There are rarely, if ever, any actual Treasury securities in the
portfolio."
"This in some indirect way may be even more attractive to socially conscious
investors," Mr. Hoffman said. This is because the subadvisers hedge the interest rate risk by
selling Treasury futures, most often without actually buying any Treasury bonds. "Let me restate,
however, that our strategy has nothing to do with social or political beliefs. There is no
guarantee that we won't actually buy Treasuries or Treasury futures contracts at some point in
time."
A prominent member of the SRI community concurred with all of Mr. Hoffman's points.
"We consider the fund to be suitable for SRI investors, though it's not specifically an
SRI fund," said First Affirmative
Financial Network (FAFN) CEO George Gay. FAFN is a nationwide network of financial advisers
specializing in SRI. "The fund uses innovative management strategies that utilize mortgage-backed
securities and derivatives to achieve Treasury-like performance without actually investing in
Treasuries."
The Short Duration Government Fund proves the value of this management
strategy; it has not had a negative quarterly or annual return since its inception. This is
significant, given that many equity funds yield negative returns in bear markets. The fund
generated an annual return of 4.1 percent for the calendar year 2002. This compares favorably to
the 2.2 percent return of its benchmark, the Merrill Six-Month Treasury Bills index. The fund's
annualized returns have outperformed its benchmark's returns over the past three years (5.5 percent
compared to 4.6 percent), five years (5.1 percent compared to 4.8 percent), and ten years (5.3
percent compared to 4.9 percent).
©
SRI World Group, Inc. All Rights Reserved.
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