AHA Socially Responsible Equity Fund's Andrew Bischel topped 98 percent of rivals this year, through July, by searching out rising natural-gas...
AHA Socially Responsible Equity Fund’s Andrew Bischel topped 98 percent of rivals this year, through July, by searching out rising natural-gas and energy stocks that met the fund’s investing standards.
The $60 million fund shuns companies that make money from tobacco, alcohol, weapons, gambling, nuclear power and abortion.
Since the fund’s guidelines allow some energy investments, Bischel has made oil and gas producers his three top picks. The fund’s largest holding, natural-gas producer Chesapeake Energy, surged 27 percent this year, through July 31.
“Socially responsible investing somewhat lies in the eyes of the beholder,” Bischel said. “Natural gas is far more efficient and environmentally friendly than fuels like coal, so where we can, we take the more environmentally friendly fuel.”
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Socially responsible funds seek to profit without investing in companies engaged in activities they deem ethically reprehensible or detrimental to the environment, with each fund setting its own criteria.
Pax World Management agreed recently to pay $500,000 to settle a claim by the U.S. Securities and Exchange Commission that it failed to meet its own standards. In the first case of its kind, the SEC said Pax funds owned stocks it was explicitly barred from holding from 2001 to 2005, including shares of an energy-exploration company.
It’s up to individual funds “to decide what counts as socially responsible,” said David Kathman, a mutual-fund analyst for Morningstar in Chicago.
The SEC action “may make funds take a look at their largest prospectuses and make sure they are following” their own rules, he said.
Bischel’s bets on energy helped limit the AHA fund’s decline to 5.2 percent this year through July 31, compared with losses of 13 percent by the Standard & Poor’s 500 Index and 11 percent by the Domini 400 Social Index, a group of stocks that have passed certain ethical criteria.
The AHA fund, which focuses on large-company stocks deemed cheap or undervalued, ranks in the top 2 percent of such funds, according to Morningstar data.
Morningstar rates the fund four stars of a possible five. It has a three-year Sharpe ratio of 0.14, compared with -0.03 for competing large-value funds. A higher Sharpe ratio means better risk-adjusted returns.
The AHA fund is owned by Chicago-based CCM Advisors and is affiliated with the American Hospital Association.
The AHA Investment Funds, which have $300 million in assets, were started by the association in 1988 to provide hospitals with tobacco-free investments. They opened to the public in 2004.
The fund invests in companies that it believes are cheap compared with financial yardsticks such as sales and price to cash flow ratios. Apart from its six ethical screens, the managers also apply what they call “soft” screens to weed out companies with poor corporate governance.