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July 31, 2006
First Socially Responsible Investing Portfolio Devoted to Diversity Launched
by Bill Baue
Minority-owned Creative Investment Research conceived of the portfolio to promote corporate
diversity while targeting women and minority investors for economic empowerment.
SocialFunds.com --
Socially responsible investing (SRI) has a long history of promoting corporate diversity through
positive screens and shareowner advocacy--for example by filing resolutions for more race and
gender diversity on the board or a commitment to sexual orientation non-discrimination. However,
there has not been an SRI portfolio exclusively focusing on diversity until last week's launch of
the Diversity Index Portfolio by Creative Investment Research, a
Minneapolis-based minority owned social investment advisory firm. The portfolio consists of
between 40 to 60 large-cap US companies with strong diversity performance.
 "While other socially responsible funds
may consider workforce diversity as one factor among
many, the Creative Investment Research
Diversity Index Portfolio makes it the top selection criterion," explains Bill Cunningham, CEO of
Creative Investment Research and the fund's investment advisor. "Companies in the Portfolio all
have a proven track record in four key measures of diversity: human capital, CEO commitment,
corporate communications, and supplier diversity."
"We research hundreds of companies each
year, using data from multiple public sources including NAACP, Urban League, Operation PUSH, and
others, and rank them on financial and diversity-related performance," Mr. Cunningham told
SocialFunds.com.
Mr. Cunningham contends that strong diversity performance can correlate
with strong financial performance. For example, back-testing of a model of the Diversity Portfolio
resulted in significant outperformance, generating 11.35 percent returns over the one-year period
ending July 25, 2006, compared to 5.02 percent for the S&P 500.
Bolstering this contention is the strong
performance of the 2006
DiversityInc Top 50 Companies for Diversity Index, which measures the financial performance of
this year's lists of the strongest corporate diversity performers as determined by DiversityInc,
the field's foremost publication. Over a ten-year period, this index outperformed the S&P 500 by
24.8 percent and the Nasdaq by 28.2 percent.
The portfolio's top five holdings include Harris (ticker: HRS), BellSouth (BLS), Ikon Office Solutions (IKN), AT&T (T), and Embarq (EQ). Other
holdings include Bank of America (BAC), Citigroup (C), Coca-Cola (KO), Ford (F), Procter & Gamble (PG), and Sprint (FON). The
portfolio's exclusive focus on diversity (it applies no other SRI criteria) means it may contain
companies screened by other SRI funds. For example, the CREF Social Choice Account, the largest SRI retail
fund in the US with $8 billion in assets, recently dumped Coke when it was deleted for
environmental, social, and governance reasons from the index upon which it is based, the KLD Broad
Market Social Index (BMSI).
"While better than
average on the diversity front, these firms are not perfect," admits Mr. Cunningham. "Creative
Investment Research monitors the portfolio to maximize social return through advocacy, education,
and consultation."
"I am a Quaker, so I believe in being proactive and collaborative," he
adds. "We think selecting these companies based on diversity may allow for advocacy concerning
other SRI issues--hopefully, we can make these firms better."
The very structure of the
portfolio may help facilitate this engagement. The portfolio is essentially a basket of companies
chosen by Creative Investment Research for investment through FOLIOfn, an electronic investing platform.
"One of the great things about Folio is that it allows you to vote proxies, since shareholders
are actually holding shares of stock in the individual companies directly, and not through a mutual
fund company," says Mr. Cunningham. "We hope to educate shareholders about diversity issues and
get them to advocate, too."
With an expense ratio ranging from 0.6 to 0.8 percent, the
portfolio specifically seeks to attract women and minority investors, who typically have less
investing experience and less money, according to Mr. Cunningham. In this way, it supports the
economic empowerment of classes of people who have been historically disenfranchised. This dynamic
at the individual investor level coincides with the goal of the portfolio at the corporate level of
promoting social justice.
"Almost everyone agrees that equal opportunity is a laudable
goal, and it has been codified in many laws in the U.S. Consequently, many people think the best
way to achieve equal opportunity is a merit-based system that is completely colorblind," says Mr.
Cunningham. "This is certainly the ideal, and one that we hope will be a viable solution in
America someday."
"However, it makes one fatal assumption: that the history of injustice
is no longer relevant to today's society," he adds. "Sadly, this is not true."
"Consequently, a colorblind outlook strikes us as hopelessly out of touch with the reality of
life in the United States and the world," Mr. Cunningham concludes. "Fortunately, there are
solutions, and we believe The Creative Investment Research Diversity Portfolio can be a positive
force for social change."
©
SRI World Group, Inc. All Rights Reserved.
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