Most managers of large socially screened funds use a variation of the following 3-step screening procedure. This procedure can also be used by individual investors:
Most managers of large socially screened funds use a variation of the following 3-step screening procedure. This procedure can also be used by individual investors:
First, they begin with a universe of several thousand stocks or more related to the character of the fund (income, growth, mid-cap, etc.). This universe can be obtained by using one or more of the standard stock indexes (Standard and Poor's, Bloomberg, Value Line, etc.). This universe is then screened by using the financial measures that the fund manager feels are most important for the particular type of fund:
Second, what results from the first financial screening is a sub-universe of several hundred stocks (similar to the Domini 400 Social Index). This sub-universe is then screened using the social and environmental factors the fund manager feels are most important as related to the fund's social purpose (environmental record, women's issues, sin screen, no war work, etc.):
Finally, what results is a list of 30 to 40 stocks that can be used to create a portfolio. Since money managers are using millions or billions of dollars to construct a portfolio, they need that many choices to create a diversified portfolio. Individual investors would probably need fewer choices for a personal portfolio. However, the list of 30 to 40 stocks would be a good place from which to make those choices.
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