Advisor Steve Sanders estimates he's helped about 15% of his clients construct socially responsible portfolios. And for the most part, the SRI portfolios have outperformed those of his other clients over the last five years or so. Here's why.
Sanders, chairman and CEO of First Genesis Financial Group in the Philadelphia suburb of Newtown Square, Pa., says most of his SRI clients typically want to invest more conservatively and don't mind giving up 200 to 300 basis points annually to achieve their goals. So when First Genesis designed portfolios for those clients, it used SRI funds or stocks that had less risk. Because these clients tended to be more conservative, First Genesis overweighted on fixed income using ETFs that invest in U.S. Treasury securities.
Although Sanders didn't want to quote specific returns, he notes his SRI clients outperformed other clients when looking back from March 31, 2009, over the last five years. "What they may have been giving up, God certainly gave them back over the last 18 months," says Sanders, whose firm has $545 million under management.
Why did he use Treasury ETFs as opposed to other bond investments in his SRI clients's portfolios? Because a lot of the corporations with available bonds were ones that didn't meet his clients's SRI screens. Instead, First Genesis used an active duration approach and stayed with ETFs that included Treasuries with three-, five- or ten-year maturities.
Sanders has more than 25 years' experience in the financial services industry and in 2005 created First Genesis, which has become one of the largest firms in the country serving African-Americans, who today make up about 35% of the firm's clients. To read more about the firm, click here.
Sanders became involved in providing socially responsible investing for some clients back in the 1980s. Sanders says he taught an investment class at the church of Rev. Leon H. Sullivan, a pastor at the Zion Baptist Church in Philadelphia who became known throughout the world for his humanitarian efforts. Among Sullivan's many achievements, in 1971 he became the first African American appointed to the Board of Directors of a Fortune 500 company when he accepted a seat on General Motors' board. He used his position with GM to launch an international campaign to reform apartheid in South Africa, developing the Sullivan Principles, a code of conduct for human rights and equal opportunity for companies operating in South Africa.
During the late 1980s, Sanders' saw a lot of interest in SRI from his clients, particularly those involved in churches and nonprofit organizations. During the 1990s bull-market years, interest decreased, and in the last two or three years, interest has grown again.
He agrees building an SRI portfolio can take more time. Since First Genesis doesn't focus exclusively on SRI, the firm wanted to make sure it could provide such services effectively. Sanders felt the best alternative was to partner with a provider that would help in building SRI portfolios, and he chose Curian Capital, based in Denver. "They give us a sophisticated way get it done," Sanders says.