The company that caters to shareholders who invest with a conscience is coming out with a squeaky clean fund applying socially responsible principles to bond offerings.
Domini, the leader in do-good investing, is in a subscription period with its latest offspring to add to its $1.7 billion
Social Equity fund. It will use many of the same screens to find companies to invest in as those in its
index. The offering statement says that Domini will buy debt mainly from corporations with the highest bond ratings from the rating agencies.
The fund is currently in the midst of a monthlong subscription period and is only available to current shareholders of the Equity Index. The fund -- to be comprised of bonds of socially conscious companies as well as governmental and municipal issues and community development projects -- will go live on June 1.
The New York company says it may veer outside the 400 companies in its index to find bonds, but its criteria for picking the do-gooders will be the same: Forget tobacco. Forget businesses running sweatshops.
By and large, investors should expect Domini to replicate the companies in its stock fund. Though that offering is full of growth-oriented dot-coms and tech wizards that beat the pants off the ho-hum
index last year, it's not likely that Domini will fill its bond fund with these recent winners. The reason: They don't borrow money. They go straight to the stock market to raise cash because it's cheaper.
"That doesn't mean they're not socially responsible," says David P. Wieder, managing principal. "Historically companies in high-growth areas are not bond issuers, that's just the nature of the organizations."
The new fund will most likely also include government securities or debt issued by government and quasi-government agencies. That could increase the prepayment risk and reduce the price performance of the fund. Agencies like
issue bonds backed by mortgages. Homeowners tend to pay them off early, driving the issuers to call back their bonds.
Up to 10% of the funds will be invested in community development projects, some of which may be private placements or have junk bond ratings. The fund will be subadvised by
South Shore Bank
, a Chicago community development bank.
Ostensibly, expenses are set at about 2.35%, but there is a waiver in place that effectively drops expenses to about 0.95%. But expect the fund's official expenses to trend lower as it grows.
IAI Growth & Index Funds Reopens After Legal Flap
It may have been reopened to new investors, but don't expect a flood of new cash to flow into the
IAI Growth & Income fund, which was shuttered for more than two months while the firm resolved a lawsuit that erupted over one of its private placement stocks.
Last October, the fund entered into a 90-day agreement with another party to sell its shares of the private company. But prior to the public offering of
, a pre-IPO stock the fund was holding, IAI realized that the shares would sell at a higher price than its agreement. The plaintiff said IAI pulled the plug on the sale. But IAI contended that the buyer let the agreement lapse.
Last week the fund's transfer agent granted Growth & Income its allotted shares of MatrixOne.
The suit was settled and terms were not released.
It's not clear if performance will get a boost now that these legal battles are out of the way. Last year, the fund's 6% return placed it in the bottom 10th among large-cap blend funds. Year-to-date, it's done better that most of its peers, up 1.03%, while the average domestic stock fund has returned a negative 0.02% through May 3.
Given the initial success of MatrixOne's IPO, it's not surprising that there was a squabble over its stock. The company went public at 25 on March 1 and climbed as high as 85. After the tech bloodletting, it closed Wednesday at $31.88. At last count, the stock represented 7% of the fund's holdings, though it had gotten as high as 12%.
IAI closed the fund on Feb. 17 in order to "prevent speculation on the pending IPO," a company spokeswoman says. IAI refused to name whom the plaintiff was. And filings with the
Securities and Exchange Commission
said the fund would reopen once the litigation was resolved. A spokeswoman confirmed that the lawsuit was decided, but refused to give any other details.
The company's general counsel was not available for comment.
This isn't the first time IAI has been caught on the wrong side of a private placement. Last year, the firm's
Value fund had 65% of its assets in illiquid securities. In 1997 and 1998, that fund bought shares of a successful pre-IPO telecom company,
. The stock saw a pop in its price, though it later canceled its IPO. A former shareholder in the fund filed suit contending that IAI had undervalued those securities. The lawsuit is still pending.
In 1999, Value and another of IAI's offerings,
Emerging Growth, bought shares of
, a high-speed Internet provider before that company's IPO. The stock eventually took a dive, but IAI had a six-month lock up provision.
The fund company has since stopped buying illiquid securities and is unwinding its positions in the ones it has.
Invesco May Launch Load Fund
Who says no-load funds and online investing are putting brokers out of business?
On Tuesday, no-load
filed preliminary paperwork with the SEC for a new stock fund that would pay broker commissions through front- or back-end loads or sales charges. Although the Denver-based fund shop, which has more than $38 billion in assets, has sold its funds through advisers via fee-based wrap accounts, it has traditionally sold its funds directly to investors on a no-load basis.
fund would be an aggressive, all-cap growth fund managed by Tom Samuelson, who previously ran two hedge funds focused on the energy sector, according to the filing. The fund's Class A shares will levy a maximum 5.5% front-end load, while its Class B and C shares charge a maximum back-end load of 5% and 1%, respectively.
Otherwise the filing is short on details, indicating that the fund isn't close to being finalized. Company officials didn't immediately return an early morning call for comment.
Though wooing brokers is potentially a bold move, it's hardly original. Industrywide, sales through the adviser channel are expected to
grow as investors' account balances rise and their need for advice on investing, taxes and other issues increases. Consequently several no-load shops, including
have started pitching their funds to brokers.
Just last month, no-load
took steps to
shares to 11 of its institutional
funds. These shares won't charge loads, but they will levy annual 12b-1 or marketing fees to pay brokers an annual asset-based fee for selling the funds.
If the fund does roll out, Invesco will probably add more broker-sold funds to have a full product line to offer brokers. In the filing, Advantage is presented as part of the
, but no other funds are named.
While the move will probably boost sales, Invesco is on a roll already. Riding hot performance by aggressive niche funds like
Telecommunications, and mid-cap growth
Dynamics, the firm had taken in more than $5 billion so far this year through March 31, according to Boston fund consultancy
. That ranks third in the industry, trailing only
, while taking in more than behemoths
If Invesco does enter the broker-sold channel it could create some friction with broker-sold $176 billion
-- both firms are units of London-based
. Like most fund shops focusing on different sales channels, the two firms have typically steered clear of one another. That might not be the case if they're competing for brokers' attention.