Wells Fargo & Co. has made its first foray into socially conscious investing.
The San Francisco-based bank on Oct. 1 launched the
Wells Fargo Advantage Social Sustainability Fund. Like many socially conscious funds, the new fund avoids alcohol, tobacco, gambling and weapons-manufacturing companies.
It also aims to invest in companies making efforts to improve their corporate-governance policies.
The fund is subadvised by Nelson Capital Management Inc. of Palo Alto, Calif., which
Wells Fargo acquired in 2002.
"We are also looking for firms that are exemplary or have the potential to be exemplary in areas of social governance and environmental performance," said Lloyd Kurtz, lead portfolio manager for socially conscious investing at Nelson Capital. "We would consider owning a mediocre performer if we believe it would be upgraded to good or very good in the near term."
The timing of the fund launch could prove fortunate for
Wells Fargo. In the wake of the financial crisis that is fast spreading around the globe, investors may be more receptive to socially conscious mutual funds, said Michael Herbst, a mutual fund analyst with Chicago-based Morningstar Inc.
"Corporate governance is going to receive greater attention in the next couple of years," he said. "There was a surge of interest in socially responsible investing after [the] Enron [Corp. accounting scandal in 2001]. I would not be surprised to see another surge in response to this crisis."
CORPORATE GOVERNANCE
Eileen Burkhart, president of an eponymous advisory firm in Cleveland, agreed.
"I think corporate governance has been in the news since the tech bust of the early 2000s, which demonstrated that there needs to be more disclosure of many aspects of corporate governance," she said. "This current crisis seems to be taking that interest more to the forefront."
Wells Fargo, for its part, says the timing of the fund's launch was purely coincidental.
"We always look to the marketplace and our own shareholders to see what the demand is and we have been watching the environmental, social and governance area for a period of time and noticing the ever-increasing acceptance of this in the mutual fund and asset management industry," said Andrew Owen, executive vice president of Wells Fargo Funds Management LLC, the company's investment arm. "There became a tipping point where we saw this was going to be an ongoing trend in the industry."
Despite the market upheaval, Wells Fargo did not consider delaying the launch of the fund, Mr. Owen said.
"Maybe they won't invest in October 2008, but this fund will be a component of our fund family for the long term," he added.
Nearly 60 socially conscious funds have been launched since 2003 and one-third of those were started in 2007 alone, according to Morningstar. At the end of September, socially conscious mutual funds housed about $47 billion in assets, up 21% from three years earlier, Morningstar reported.
FOCUS ON INVESTING
Unlike some socially conscious funds, the Wells Fargo Advantage Social Sustainability Fund does not intend to engage with management to bring about change.
"It's an equity fund, and first and foremost an investment vehicle," Mr. Owen said. "Having environmental, social and governance principles will enhance the value of the fund. Corporate governance has a high impact on the companies and their performance with the stock market."
Maybe so. But investors may have to wait for returns, Mr. Herbst said.
"In general, chances are that socially conscious funds won't produce immediate outperformance," he added.
E-mail Sue Asci at [email protected]
