Cause Marketing Might Cause Hit To Charitable Donations
Buying products from companies that funnel a portion of sales proceeds to a good cause is nice, but it could result in less charitable giving by consumers, according to a recent study by Aradhna Krishna, a marketing professor at the University of Michigan's Ross School of Business.
In studies involving 300 students at the university, Krishna found that cause marketing not only drains resources that might otherwise go to a charity or social cause, it might drain some of the satisfaction that comes from philanthropic giving. That's because the act of buying something associated with cause marketing--despite its do-gooder connotation--is a selfish act. In other words, cause marketing is shopping in disguise, and it may be "costless" to consumers if they would have bought the product anyway even if it weren't linked to a good cause.
Pure charitable giving with nothing expected in return (except perhaps a tax deduction) is more altruistic, which engenders warm fuzzies among givers. The study's findings indicate that people appear to realize their motives for participating in cause marketing are more selfish than with charitable giving, thus reducing their subsequent happiness. But this doesn't prevent them from thinking their purchase is a charitable act, which in turn can decrease subsequent charitable acts.
Krishna acknowledges the small sample size of her study has limitations and requires more studies.
Opening Up About Closed-End Funds
Closed-end funds take a back seat in many portfolios--if they get a seat at all--because they're more complicated than open-end mutual funds and generally don't get a lot of ink (The Wall Street Journal, for example, publishes its performance table just once a week, on Monday). Throw in hefty sales loads on IPOs, market prices that are often at substantial discounts to underlying asset values, the lack of research on funds and the ownership disconnect that often exists between management and investors, and there's little wonder why these funds don't get a lot of attention.
But interest in closed-end funds is growing, according to speakers at a Capital Link-sponsored investment forum last month in Manhattan. Jonathan Isaac, director of product management at Eaton Vance Investment Managers, cited the rising issuance of IPOs in closed-end funds. The trailing 12-month period through April saw 18 new closed-end fund offerings that raised more than $9 billion in the primary markets. That compares to $7.6 billion raised during all of 2010. Two-thirds of the new funds were bank loan, high-yield and short-duration funds, as well as master limited partnership, resource and commodity funds. Isaac said this indicates that investors want protection against anticipated inflation and rising interest rates.
Isaac also noted that leverage-a key feature of closed-end funds that boost yields-is returning. Closed-end fund managers got whacked when leverage turned against them and exaggerated losses during the financial crisis. In addition, the funds weren't able to refinance leverage after credit shut down. But Isaac said he's seeing leverage return to pre-crisis levels, thanks to renewed access to credit and investor demand for higher-yield products. This can be a good thing in a positive investment environment, but could turn ugly if interest rates shoot up and security prices start falling.
During the depths of the financial crisis, many institutional investors waded into closed-end funds, enticed by the deep discounts of their market price to the underlying asset value. Most of those discounts have corrected substantially. Marc Loughlin, head of U.S. closed-end fund sales at Canaccord Genuity, said that today these types of investors are much more focused on fundamentals and they are asking questions about a fund's management, structure and degree of leverage. In short, "all the questions that weren't being asked several years ago," he said. This suggests institutions are focused on long-term investing rather than opportunistic trading. If so, it bodes well for improving market valuations and shrinking discounts.
Another evolving theme: Industry competitors are increasingly buying one another's products. According to Will Kover, a senior vice president at Guggenheim Funds Distributors, the growth of closed-end funds of funds is diversifying the shareholder base, especially in unit investment trusts where sponsors assemble a series of closed-end funds in limited-term products.
"This enables investors to have professionally selected and actively managed portfolios of closed-end funds," Kover said. He noted the leading UIT sponsors include First Trust Portfolios, Guggenheim Funds, Invesco, and Advisors Asset Management.