Fund Observer

How socially responsible is socially responsible enough? That's the awkward question that managers across the country are grappling with as they balance the need to be profitable against their investors' demands for funds that follow strict guidelines. Think of it in terms of vegetarianism versus veganism.

In the investing world, the debate plays out like this: Do fund providers merely need to employ rudimentary screens? If that's not enough, how thorough do the screens need to be before they are sufficient? These questions are important for two reasons. First, they are impossible to resolve. And second, they are being asked more and more as social, environmental, and religious funds proliferate. Last month, FaithShares Trust introduced the world's first Christian exchange-traded funds. Four of its ETFs represent specific denominations—Lutheran, Methodist, Baptist, and Roman Catholic—and one is a catch-all Christian fund. Each of the first four tracks a different proprietary large-cap index that is molded around the given denomination's guidelines as to what constitutes an acceptable investment. The Christian fund's index is a hybrid of the other four.

[See The World's First Christian ETFs Debut.]

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Mutual funds whose directors have "skin in the game" significantly outperform their competitors, according to a study by Syracuse University Prof. David Weinbaum. His results confirm the commonly held belief that directors who are invested in the funds that they oversee act as better stewards than directors who don't have any money on the line.

[See Study Shows Increases in Mutual Fund Fees.]

In the study, which was published last month in the Journal of Financial and Quantitative Analysis, Weinbaum and his colleagues examine roughly 1,000 actively managed stock funds from the 25 largest fund providers. They break the funds into four groups based on the amount of ownership interest that their directors have. The funds in the bottom quartile don't have any directors with money in them, while those in the top group are marked by significant director investment. All told, the funds in the top quartile have outperformed those in the bottom one by upwards of 2 percent per year.

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Public relations specialist Irving Straus says that by the middle of next month, he will unveil the ETF Council, a trade group for exchange-traded funds. The council will be charged with making ETFs more visible and lobbying for them in the federal government.

[See ETFs Cross $1 Trillion Mark.]

For years, Straus has represented financial services companies through his public relations firm, Straus Corporate Communications. He is also the founder of the Mutual Fund Education Alliance, a group that works to promote mutual funds. With his new venture, Straus hopes to give the budding ETF industry its first unified and exclusive front. "The idea here is to have a voice of the ETF industry," he says.

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The numbers are in, and it turns out that 2009 was a record-breaking year for dividend investors. But some records don't warrant celebration. According to an analysis by Standard & Poor's of about 7,000 domestic companies, dividend cuts cost investors in U.S. stocks somewhere in the neighborhood of $58 billion in 2009. S&P says that 804 U.S. companies decreased their dividends last year, up from just 110 in 2007. Meanwhile, 1,191 domestic companies increased their payouts, compared with 1,874 in 2008 and 2,513 in 2007. All told, according to Standard and Poor's, 2009 was the worst year for U.S. dividends since the company began tracking them in 1955. 

[See How to Add Yield to Your Portfolio.] 

In this climate, if you're wondering where the dividends are, you're hardly alone. But if you're willing to hunt for them, there are plenty of pockets internationally where dividend payouts remain relatively strong. U.S. News spoke with David Ruff, a comanager of Forward International Equity Fund, about dividend opportunities abroad. In 2009, Ruff's fund gained 36 percent. Excerpts of our discussion: 

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