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July 12, 2007
Selling As A Clear Message: Investors Rid Their Portfolios Of Companies With Ties To Sudan
by Anne Moore Odell
Claymore/KLD offers the First Sudan Free ETF for retail investors while the SEC's new list of
companies operating in "States of Terrorism" is seen by some as too broad.
SocialFunds.com --
Almost three years ago, the US Senate and House of Representatives adopted a joint resolution
declaring the atrocities in Darfur region of Sudan to be genocide. The US government has imposed
federal sanctions against Sudan, and very few US companies are currently doing business in Sudan.
The US businesses still operating there are humanitarian in nature.
However, many international companies have ties
with the Sudan government and Sudan companies, especially oil companies. As investors have moved
their investment strategies away from negative screening and divestment into shareholder activism,
the call for divestment in companies with ties to the Sudan is rapidly building.
Eighteen
states have adopted divestment from the Sudan policies while 19 more states have initiated Sudan
divestment campaigns. Many large institutional investors, including universities and religious
institutions, have divested from Sudan as well. Claymore Securities, headquartered in Lisle,
IL, has recently launched the Claymore/KLD Sudan Free Large-Cap Core ETF (Ticker: KSF), the first Exchange-Traded Fund (ETF) for retail investors interested in having a Sudan
free portfolio.
The new ETF follows the KLD Large Cap Sudan Free Social Index, the first
index created for Sudan divestment. KLD Research
& Analytics, located in Boston, MA, is a provider of socially responsible research and indexes.
The KLD Large Cap Sudan Free Social Index is a created from the KLD Large Cap Social Index, which,
in turn, is selected from the Russell 1000 Index that includes companies with market
capitalizations greater than $1 billion. Companies in the Sudan Free Social Index are screened for
environmental, social and governance issues and involvement in Sudan.
"While institutions
have been at the leading edge of Sudan divestment, KLD expects increasing demand from individual
investors since the situation in Sudan remains dire and the international spotlight continues to
shine on the issue," said Christopher McKnett, Business Development Manager, KLD Indexes. "An ETF
is a compelling product for Sudan-free investments because it appeals to individuals and
institutional investors alike due to low fees, transparency and tax efficiency."
The KLD
Large cap Sudan Free Social Index does not include companies that conduct business operations in
Sudan, including businesses that own/control property in Sudan, have employees or facilities in
Sudan, provide goods or services to companies domiciled in Sudan, obtain goods or services from
Sudan, purchase goods or commercial paper issued by the government of Sudan. However, the index
does not exclude all firms with ties to Sudan as the methodology exempts companies with exclusively
humanitarian operations in Sudan.
"What we try to do is provide innovative products," said
Christian Magoon, Senior Managing Director, Claymore. "A lot of ETFs are representative. We take it
one step further and use indexes as an investment strategies, versus a general benchmark. We are
like a Prius of ETFs, a hybrid technology that will hopefully out perform traditional benchmarks."
The Claymore ETF will invest at least 90% of its assets in stocks and ADRs that are found
in the KLD index. As of July 9, 2007, it had 150,000 shares outstanding with total managed assets
of $3,800,705.
Claymore's newest ETF joins several other ETFs offered by the company that
are socially conscious in nature, including an environmentally screened ETF, a global vaccine ETF,
and a global water supply ETF.
KLD also offers the KLD Sudan Compliance list, a Sudan
screening product, which is sold primarily to institutional investors and money managers seeking to
comply with a Sudan divestment mandate. They are currently working on creating an Iran divestment
list, which will correspond to new legislation that is about to be passed into law in Illinois.
The question of what companies to include or exclude as businesses with ties to Sudan is
complex. The SEC recently launched on its
website a method for investors to search a company's annual disclosures for references to
operations in countries that the US State Department labels "State Sponsors of Terrorism," which
includes Sudan.
Yet the SEC's tool can only be part of the toolbox investors need to
understand divestment from Sudan. Only companies that are included on US stock exchanges need to
disclose this information and many foreign companies are not screened out by the SEC's list. In
addition, the SEC required disclosure when operations are "material" to the company. The definition
of what is "material" for a company obviously differs from company to company and investor to
investor.
The Sudan
Divestment Task Force, a project of the Genocide Intervention Network, has a number of
tools for investors to check if their investments are Sudan-free, including a free listing of
companies that they feel warrant scrutiny for their Sudan-linked operations.
When the
situation in Sudan changes for the better and the regime is no longer considered a rogue state, the
Claymore/KLD Sudan Free Large-Cap Core ETF will follow KLD's Large Cap Social Index from which the
Sudan-screened index is drawn.
©
SRI World Group, Inc. All Rights Reserved.
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