Wednesday, April 26, 2006

Socially Responsible Investment in Defence of Usury

While doing a little backround research on my article about KLD Social Responsible ETF, I stumbled upon the vast world of the socially responsible investment comunity. As an anthropologist it’s very interesting to see how personal beleifs intereact with capital in a capitalist society.

The only time people directly invest capital in a corporation is during an initial public offering of stocks or bonds. After the underwriters are done selling securities to the market, the securities represent a participation. Bonds are a participation in a series of cash flows paid from business profits, and shares represent a participation in the underlying business itself. The $5 dividend of Reynolds American (RAI) is earned by the sale of several packs of cigarettes. If the cigarettes are not sold, the dividend is not paid.

Looking over my own portfolio and comparing them to Sierra Club Mutual Fund investment guidlines. My portfolio comes up short. My investments in operators of Pawnshops and Pay day loan operators fail the club's guidlines against investing in "preditory lending." However ethical philosopher Jeremy Betham (father of Utilitarianism) wrote a tract in Defence of Usury adressed to Adam Smith. So I can feel some vindication in my investment.

The Christian Science Monitor has a very nice section on their website devoted to ethical investing. Each month journalist Laurent Belsie sits down with guests to discuss the outlook for ethical investing in a videotaped round table discussion. It's interesting to watch and gives you something to think about.

There is even a mutual fund The American Trust Allegiance Fund which invests according to Christian Science values. The Allegiance Fund avoids the classical alcohol, gambling and tobacco industries. As Christian Science inspired fund, it also declines investment in the health care, biotech, and medical diagnostics industires. The fund as large growth orientation, and has earned four stars from morningstar for having below average risk.


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