So what is the problem with investing money in a mutual fund that promises to advocate issues and yield a return? According to one Slate.com writer, Daniel Gross, the problem is that the group provides this service for “right wing, free-market type[s].”
The fund is called the Free Enterprise Action Fund (FEAF), and it is run by managers Thomas Borelli and Steven Milloy for the purposes of, “both financial and pro-free enterprise ideological returns to investors.” According to the duo, the group was founded in order to combat the left’s social and political agenda being advanced in publicly owned corporations. They assert that these left-wing activists, under the banner of Social Corporate Responsibility, “target law-abiding corporations with threats of organized boycott, negative publicity, shareholder controversy, litigation and/or product disparagement unless and until their demands are met.”
Battling these groups is no small job for the fund, either. Borelli claims that there are at least 200 mutual funds that actively promote the liberal social agenda, including environmental issues, animal rights, and abortion rights.
But Borelli does have a handful of conservatives using the “promotional” approach of becoming shareholders to change business practices.
For example, Reverend Kenneth L. Hutcherson is asking Christians nationwide to become shareholders in companies that promote a liberal social agenda. As shareholders, Hutcherson says that they can influence company policy. He explains, “When these companies see what kind of paperwork and reporting they will have to do with these small shareholders, it will cost them much more than they could ever imagine.”
The promotional approach was even used by the late Reed Irvine of Accuracy in Media. He bought shares in media companies and began to influence business policy by questioning media bias.
Taking a lesson from Irvine, FEAF won national attention when it called for General Electric’s CEO to end his “green is green” initiative unless he could prove scientifically how climate change policy is relevant to GE. In the article FEAF claimed, “?.companies should concentrate on making money, and not on changing public policy.”
The Slate.com writer, Daniel Gross, had a lot of criticism of the mutual fund. In his article he claimed that the group is a “lobbying enterprise masquerading as a mutual fund,” whose portfolio managers, Borelli and Milloy, have no professional experience in managing money. This, he asserts, has resulted in a mutual fund with dismal returns because “these [Borelli and Milloy] free-marketers are failing the test of the marketplace.”
“We are agitators to their [liberals] view of the world,” rebutted Borelli. He attested that they do not manage the funds alone; rather they have an experienced sub-advisor who makes recommendations.
Even though the mutual fund has made money, Gross points to their returns, which are trailing the S&P 500.
In response, Borelli and Milloy pointed out that their group is new and that they are using their personal capital to pay for fund expenses, stating “[we] are using our own money to pay for the fund’s operating costs while it is in its growth phase. That’s a reflection of how strongly we believe in the mission to promote free enterprise.”
In response to the allegation that the mutual fund’s returns were lagging, Borelli claims that the small fund has higher management fees compared to other, larger funds and that the funds investments are weighted toward large cap stocks, which have underperformed the smaller stocks in the S&P 500. More importantly, Borelli notes, “Our investors want the dual return: financial and philosophical, and we have delivered on both.”
Other professional financial media outlets have also taken an interest in this small group. Money Management Executive, a newsletter that deals specifically with mutual funds, SMAs, 401k(s), and 529s, praised the group in their April 2006 issue as being the “mouse that roared.” Investmentnews.com also wrote a story about the achievements of the fund and its managers, calling the two “feisty” and claiming that their approach to promoting free market ideals has “managed to rattle some of Wall Street’s sturdier cages.”
In light of the praise from financial media outlets, why such a negative review from Slate.com writer, Daniel Gross? Borelli claims that this criticism may be because he and other writers, “completely ignore the fact that we [FEAF] are no different than Domini Funds [a mutual fund that promotes liberal activism] except, of course, [for] our philosophy. They aim for dual returns as do we?.” adding that in comparison to this liberal counterpart, “They are much older so they are much bigger. We have not seen Domini being criticized for having a fund that has 400 stocks or that is really a political group masquerading as a mutual fund or that its performance lags the S&P 500.”
Perhaps even more shocking to Gross is that the group was not established purely for profit. Of this, manager Borelli indicated that their investors “get a philosophical return from our advocacy which is not reflected in a side-by-side financial return comparison with the S&P 500.”