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October 29, 2002
SRI Index Fund Uses Overweighting and Underweighting to Fully Replicate S&P 500
by William Baue
Instead of screening companies in or out of the Total Social Impact Fund, this enhanced index fund
concentrates its holdings in positive social and environmental performers.
One of the defining features of socially responsible investment (SRI) mutual funds is screening.
Negative screens, also known as exclusionary or avoidance screens, reject companies with poor
environmental or social performance. Best-in-class and positive screens seek to identify better
social and environmental performers. Using screens for index funds can be challenging because when
the fund screens out poor social and environmental performers, it is unable to fully replicate the
benchmark index. Cincinnati-based Summit
Investment Partners has devised an index fund that addresses this issue; the fund achieves SRI
objectives without altering the constitution of the benchmark.
“The Summit Total
Social Impact Fund (ticker: SATSX) is an enhanced S&P 500 index fund that employs corporate
responsibility ratings to enhance the underlying index,” Portfolio Manager Stephen Dillenburg
told SocialFunds.com. “It is the only SRI index fund that is a complete replication of the
benchmark. It does not screen out companies . . . . Rather, it overweights and underweights
companies based on their business practices toward stakeholders.”
The Total Social
Impact (TSI) Fund employs TSI Ratings, which rate companies on their corporate responsibility in
relation to eight stakeholder groups. These stakeholders include customers, employees,
owners/investors, suppliers, competitors, the community, the environment, and society. Higher TSI
Ratings prompt the fund to purchase more shares of these positive social and environmental
performers. Conversely, lower TSI ratings cause the fund to minimize the holdings of these
companies. The fund thus “rewards” positive performers by overweighting the investment
and “punishes” poor performers by underweighting. TSI Ratings were devised by the Total Social Impact Foundation, a
nonprofit organization founded by Summit Investment Partners to promote corporate responsibility
globally. The Total Social Impact Fund is the first fund to use the TSI Ratings, which the
Foundation makes available by license or subscription.
In addition to weighting companies
differently depending on their social and environmental performance, Summit actively engages with
companies as part of the TSI Rating process. The firm encourages companies to adopt progressive
social and environmental practices and policies that are associated with higher TSI Rating scores.
Summit also actively votes proxies, most often in favor of shareowner resolutions that
encourage companies to act more responsibly, according to Meg Collins of Summit’s Marketing
Group. Summit intends to publish its proxy voting guidelines as well as its proxy voting record on
the Web within the next six months. Summit does not file shareowner resolutions itself, according
to Ms. Collins.
The TSI Fund tracks its benchmark, the S&P 500, very closely. As of
September 30, 2002, the TSI Fund’s year-to-date returns were down 28.12 percent, while the
S&P 500 returns were down 28.99 percent. The fund’s third quarter returns were down 17.09
percent, compared to the benchmark’s returns that had fallen 17.63 percent.
performance from this time period shows that the Total Social Impact Fund earns returns competitive
with its benchmark while simultaneously encouraging improved social and environmental performance
from all of the constituent companies in the S&P 500.
Order a free fund
visit the SocialFunds.com Prospectus Ordering
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