Morningstar Advisor - June/July 2009 - 16

Advisor Profile Marjorie Bennett, principal, Aegis Capital Management, Inc. believe should be a minimum of $2.5 million to $3 million,” she says. “If a client only has $1 million, then the manager might direct 60% into large-cap stocks, which really isn’t advisable.” Bennett says that SRI products have trended from mutual funds to separate accounts and now to ETFs. “PowerShares has a nice lineup of clean energy or alternative ETFs,” Bennett says. “We’re also seeing new specialty indexes, like ones related to carbon footprints. Once a new index comes out, an investment product— often an ETF—comes along to track it.” Moving Forward How she caught our eye: Specializes in socially responsible investing—something few advisors tend to do. Career path: Senior financial executive for various San Francisco Bay area companies, including one of the original “Big Eight” public accounting firms. She was vice president at Morgan Stanley Institutional Asset Management before launching her own firm, Aegis Capital Management, in 1998 in Oakland, Calif. Bennett secured her CPA in 1983 and her MBA from the University of California at Berkeley in 1987. Personal: Bennett is married, loves travel, good friends, and her dogs. She splits her time between Oakland and Kauai, Hawaii. Favorite SRI funds: iShares KLD 400 Social Index DSI, iShares KLD Select Social Index KLD, Parnassus Mid-Cap PARMX, Parnassus Small-Cap PARSX, Parnassus Fixed-Income PRFIX. Although she is an SRI-oriented advisor, Bennett has been dealing with the same day-to-day issues facing every advisor seeking to lessen the blow of the market meltdown on their clients’ portfolios. “Last year, we lost less by reducing our clients’ exposure to the financials sector and high-yield bonds,” she says. “Our next step was to maximize aftertax returns to clients by aggressively harvesting losses to offset the capital gains we had. We didn’t sell stocks and run to cash; that’s just market-timing.” Of course, when to get back in is usually the harder question. “We haven’t yet balanced back to target,” Bennett says. “So, if a client had 60% of his portfolio in stocks and 40% in bonds and the market eroded stocks to a 50/50 allocation, we left that allocation in place, because we see more risk to the downside than the upside.” If it sounds like SRI requires the ability to accept compromises, it does. “I’m a big advocate of SRI, but there is a cost associated with it: higher expenses and lower returns,” Bennett says. “I really like to have SRI reflect my clients’ values, but they also must be realistic for their situation. Some clients can’t commit 100% of their portfolio to SRI.” K David J. Drucker is an independent financial advisor and contributor to MorningstarAdvisor.com. Beware of Overweightings Keeping SRI clients diversified requires constant monitoring by Bennett, and it’s an ongoing battle. “In the world of SRI, you are by definition tying a manager’s arm behind his back,” Bennett says. “We know diversification is your friend, and any time you constrain it, you force additional risk on yourself. I can point to two events in the history of SRI where that’s been a bad attribute: technology in the late 1990s and financials in 2008.” In the late 1990s, technology companies were young and had no negative impact on the environment. They easily passed screens, and SRI mutual funds became overweighted in tech stocks. That was a bad position to be in when the tech bubble burst in 2000 and these companies got hammered. The 2008 market correction caused a similar problem with bank stocks. “Banks are generally good to their employees and don’t hurt the environment,” Bennett says, “but I had to move my clients out of this arena last year.” The key, Bennett says, is studying a fund’s strategy. “There are screens that have to be satisfied for a stock to enter a mutual fund, so first, you need to look under the hood at the fund’s screening process.” SRI Matures As SRI comes of age, clients can now buy socially responsible investments in vehicles other than mutual funds. If they have large enough accounts, Bennett has clients in SRI separately managed accounts. “It’s mostly a function of account size, which I 16 Morningstar Advisor June/July 2009

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Morningstar Advisor - June/July 2009

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