State Street Global Investors, Boston, teamed up with New York-based Innovest Strategic Value Advisors Inc. to develop an environmentally screened large-cap core portfolio.
Kim Gluck, a principal and lead socially responsible portfolio manager at SSgA, said the new product, which is benchmarked to the Russell 1000 index, will not only screen companies for their environmental practices, but will also use traditional quantitative screening methods to choose securities. SSgA will examine a company's future earnings and cash flow, debt, and investor sentiment based on earnings and ratings revisions. SSgA will use Innovest's stock rating system to judge securities.
Ms. Gluck acknowledged that traditionally, some pension fund board members have resisted "green" portfolios. "A lot of them say, ‘yeah, we'd like to do something, but we have fiduciary responsibility,'" she said. "To them, using environmental screens makes them very nervous, as they are afraid it would open them up to liability."
The portfolio, based on a six-year model ended June 30, 2004, has a back-tested compound annualized return of 41.15%, Ms. Gluck said. An active Russell 1000 portfolio using the same quantitative research, minus the environmental screens, has a compound annualized return of 28.45% over the same period. "Based on our performance models, we don't think that strong performance and being environmentally responsible are mutually exclusive of each other."
