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Barclays' new fund shows global financial players are taking notice of SRI trend

We'll know that socially responsible investing has officially hit the mainstream when one of the big banks starts offering an SRI mutual fund.

Until that time, the maturation of the sector in Canada will be symbolized by an exchange-traded fund to be launched tomorrow or early next week called the iShares Cdn Jantzi Social Index Fund.

New funds are sprouting like dandelions these days and some of them are prime examples of how the financial industry's quality control centre will sometimes shut down in the pursuit of a hot trend. The iShares Jantzi ETF is a good one, though. If you're someone who wants to channel your investment dollars into the best corporate citizens, then this is an ideal way to do it.

There are already about 70 SRI mutual funds to choose from, so the iShares Jantzi ETF (the symbol is XEN) does not break any new ground. In fact, a similar mutual fund called the Meritas Jantzi Social Index Fund has been around since March, 2001. What's significant is the fact that the iShares Jantzi fund has been issued by Barclays Global Investors, a huge financial player around the world.

"What we're seeing with Barclays is that mainstream companies are starting to look at SRI, and I think we'll see more of that in the future," said Eugene Ellmen, executive director of the Social Investment Organization, a trade association for the SRI sector.

A recent study by Mr. Ellmen's group shows that SRI has gained in popularity to the extent that the value of socially invested assets was $503.6-billion as of the middle of last year, up from $65.5-billion in 2004. Pension funds account for most of this growth, but Mr. Ellmen believes we're now at a turning point for retail investors.

Concern about global climate change is a key driver of this trend, he said. "Just as people are starting to think more about buying hybrid automobiles and reducing their greenhouse gas emissions at home, they're also starting to look at how this can apply to their investment portfolios."

Barclays says it's responding to demand reflected in the fact that 20 per cent of the assets in retail mutual funds and institutional investments can be classified as SRI. "Investors have articulated that they're interested in lining up their values with their investments," said Heather Pelant, head of business development for the iShares series of ETFs.

The iShares Jantzi ETF is arguably the best option yet for SRI investors in Canada. The reason is that this fund will inexpensively replicate the returns of the Jantzi Social Index, a seven-year-old benchmark for socially responsible investing that offers two important attributes.

One, it has performed well. Two, it represents an investment in blue-chip companies and can be used as a way of getting core Canadian equity exposure in a portfolio.

The Jantzi Social Index is a version of the S&P/TSX 60 index of big blue-chip stocks that includes only companies meeting requirements for corporate behaviour in areas such as the environment, corporate governance and social issues. The index takes a pragmatic and not idealistic approach. While tobacco, arms and nuclear power companies are excluded, all economic sectors are represented, including mining and energy companies.

The management expense ratio for this new ETF is 0.5 per cent, which is less than one-quarter of what most SRI mutual funds charge. Yet it also represents a large premium over the 0.17 per cent charged for the iShares Cdn LargeCap 60 Index Fund, a straight play on the S&P/TSX 60.

The higher fees for the SRI fund are a concern, but there's some consolation in the relative performance of the Jantzi Social Index and the S&P/TSX 60. From inception in Jan. 1, 2000, through April 30, 2007, the JSI returned 8.72 per cent annually while the S&P/TSX 60 made 7.89 per cent.

This level of outperformance can't be counted upon in perpetuity, though it does suggest a possible correlation between socially responsible corporate behaviour and a rising share price. Mr. Ellmen of the SIO said this connection is being studied academically, but no conclusions have been reached.

If you want to survey the entire market for SRI investing, the names to look at include Ethical Funds, Inhance Investment Management and Meritas. Large fund families with SRI funds include Acuity, Desjardins, Investors Group, Mackenzie and Phillips Hager & North.

The bank-run fund families, some of which are mutual fund industry leaders, aren't in the game yet. But Mr. Ellmen said he often hears rumblings about this happening. "I think we'll see it some time in the future."

More new ETFs

The iShares Jantzi fund is being launched alongside two other new products, the iShares Cdn Russell 2000 Index Fund (XSU), which offers currency-neutral exposure to U.S. small- and medium-size companies, and the iShares Cdn SmallCap Index Fund (XCS).


The iShares family of exchange-traded funds is being expanded to include a socially responsible fund called the iShares CDN Jantzi Social Index Fund. This new ETF tracks the Jantzi social index, which is similar to the widely followed S&P/TSX index in that it consists of 60 of the largest publicy traded Canadian companies. Here's how the Jantzi social index has compared to both the S&P/TSX 60 and the broader S&P/TSX composite index. The iShares Jantzi ETF will reflect the performance of the Jantzi social index, minus fees of 0.5 per cent.

ReturnsApr-073 mths.6 mths.1 yr.3 yr.*5 yr.*Inception*Inception**
S&P/TSX composite2.07%3.53%10.03%12.72%20.08%13.56%8.41%80.91%
S&P/TSX 601.83%2.87%9.92%13.91%21.13%13.59%7.89%74.52%

* Annualized **Cumulative (since 01/01/2000)


© 2007 The Globe and Mail. All rights reserved.

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