The Socially responsible investments may let you stay away from the tobacco, alcohol, weapon manufacturers, and nuclear power stocks, but socially responsible investments may be very risky for your investment portfolio.
The Calvert Social Index is widely used benchmark for the universe of the socially responsible stocks. As of 9/30/2005 it included 633 stocks in the index. The P/E ratio of the Calvert Social Index as of 9/30/2005 was a whopping 44.8. The S&P 500 index includes 500 stocks, and as of 9/30/2005 the P/E ratio of the S&P 500 index was just 17.9.
When I compare the book values of the two indexes, I see the same picture. The Price/Book ratio of the Calvert Social Index was 4.4 at the end of September 2005. The Price/Book ratio of the S&P 500 index was 2.8 at the same time.
Everyone knows that the perceived socially irresponsible stocks like tobacco companies trade at very low P/E ratios, but I never imagined that they bring down the P/E of S&P 500 index by more than half. Without socially irresponsible stocks the S&P 500 could trade at very high premiums.
The Vanguard Calvert Social Index Fund (VCSIX) benchmarks Calvert Social Index. I wasn’t surprised to see that this fund is not too much popular among the investors in the Vanguard index fund family. The current assets under management are less than $400 million.