Citing the constraints of indexing, the Domini Social Equity Fund is looking to become actively managed.
"This is one of the biggest, toughest decisions I have had to make," fund founder Amy Domini told MarketWatch.
For six years, Domini said, she has been struggling to deliver performance to her investors by following the Domini 400 Social Index, which is comprised mainly of large-capitalization stocks. All Domini holdings must meet certain social and environmental criteria.
If approved by shareholders, the fund would turn to Boston-based Wellington Management. The strategy would mirror that of the Domini European Social Fund, employing Domini social and environmental criteria with Wellington's quantitative style, which depends on computer-driven analysis and modeling.
"We have had a period of a number of years that have been quite frustrating, where our screening added value but the weightings we had to follow prevented us from delivering all of that value," Domini said. "I have felt that the investor is better off in the active strategy for a while now," she added.
Domini will soon send proxies to voters, and hopes, pending approval, to adopt the new approach as early as Nov. 1.
"It's a huge change for people who think they have a social index and who want S&P 500-like performance, said Gregg Brewer, director of mutual fund resources at Value Line, an investment research firm in New York. "I thought the whole point of the fund was to be a social alternative to an S&P 500 fund, and I think most shareholders would think it served that role well."
Domini's European fund has outperformed benchmarks for the short time it has existed, although index enthusiasts argue that indexes beat managed funds over the long term, ultimately.
"I believe shareholders are looking at the same thing I am looking at, which is how well they have done relative to the market, and they are thinking they could do better," Domini said.
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