Jerome Dodson
Parnassus Fund
by Marla Brill
MFI Publisher
Part II
Part I: Dodson Moves In
Can Socially Responsible Investing Beat A Bad Rap?
As a mutual fund that specializes in socially responsible investing,
Parnassus Fund does not invest in stocks of companies involved in the
manufacturing of tobacco, alcohol, and weapons, or that derive revenue from
gambling or that generate electricity from nuclear power. It also looks for
companies that respect the environment, treat their employees well, have
effective equal opportunity policies, good community relations, and ethical
business dealings.
While criticizing such admirable ideals may seem like kicking a choirboy in
the stomach, detractors believe that limiting an investment universe in this
manner hurts returns. Proponents like Dodson say that there are more than enough
stocks left after their screens to put together a winning portfolio, and that
investment performance has more to do with the talents and style of the
individual investment manager than social criteria. "If the fund hasn’t done
well in a particular year, it isn’t because of any social criteria," says
Dodson. "It’s because I haven’t picked the right stocks."
Many socially responsible funds, including Dodson’s, missed the rebounds in
stocks of tobacco companies, weapons makers, and energy companies over the last
couple of years. But they also managed to sidestep the fallout from the
litigation woes that plagued the likes of Phillip Morris, and the stagnation of
oil company stocks when the price of crude was mired in sludge. Those that
leaned toward "clean" industries such as technology plugged into the sector’s
performance surge in the late 1990s, although that bias backfired in the more
recent tech wreck.
In the long run, socially responsible investing may just be a different
approach that, by virtue of a bias toward growthier "clean" industries,
outperforms during some periods, and underperforms in others. Over the last
three years, the Domini Social Index 400, a socially-screened index designed to
mirror the Standard & Poor’s 500, fell an average of 3.9 percent annually,
compared to a drop of 2.46 percent for the S&P. But the Domini Index was
slightly ahead for the five- and ten years periods, with returns of 9.2 percent
and 13.27 percent, respectively, compared with 8.45 percent and 12.41 percent
for the S&P 500.
Beyond the question of performance is the notion that social screens can’t
possibly filter out every manner of bad behavior, and that almost every company
has skeletons in its closet. And while investors may agree with one social
screen, they many not support another. One of the more controversial ones these
days, says Dodson, is weapons manufacturers. Many people simply don’t put
corporate polluters and those involved in national defense in the same category,
particularly after the September 11 terrorist attacks brought patriotism back
into fashion.
"We have gotten letters from a number of shareholders asking us if we intend
to change our policy on weapons manufacturers," he says. "When the fund was
started in 1985, the country was spending way too much on the military, which
isn’t the case anymore. I believe we need a strong defense, and we’re having a
dialogue with shareholders on the issue right now. It’s certainly not as
clear-cut as our other screens."
Parnassus Fund At-A-Glance
Manager: Jerome Dodson; since 1984
Assets: $405 million
Top five holdings: Ciena, Redback, American International Group, American
Express, Fannie Mae.
Telephone: 1-800-999-3505
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