Simply Blue: A Profile of The Blue Fund

Socially responsible investing is not new. But how about the concept of politically responsible investing?

The Blue Fund , which launched Oct. 17, 2006, is the first SRI index mutual fund to add an overtly political component. Included companies and executive officers not only express progressive ideals, but they also make corporate and personal contributions to the Democratic party, thereby literally putting their money where their mouths are.  

Joseph J. Andrew is an expert in mergers and acquisitions law and currently a partner in the law firm Sonnenschein, Nath and Rosenthal LLP . From 1999-2001, he had the high-profile role of chairman of the Democratic National Committee (DNC) . In this position, he publicly contemplated the relationship between corporations and corporate contributions, and saw that the majority of money was going to Republicans and the GOP. 

Recall that the late 90's was the height of the "new economy," where many entrepreneurial and online companies tended to be run by Democrats.  It was during this time that Andrew wondered why, in the middle of the "e-commerce revolution," investors were sticking with the old, stodgy S&P 500 companies. He saw a loop between the Republicans, Corporate America and investors, in which progressive ideals and values were not being brought to the forefront.

At the same time, Daniel de Faro Adamson , whose professional background combines law, politics, economics, strategic consulting and finance, envisioned creating a mutual fund that would add a progressive politics screen to the usual ethical screens used in socially responsible investing.

"A lot of progressives think about their environmental footprints and ethical footprints. It made me think about our investment footprints, and how we put our life savings to work.
There are more than 200 socially responsible investment funds, focused on human rights, the environment, animal rights, etc. But there was no fund to let me support companies that only behave in line with my ethical and political views," Adamson says.

Word of Andrew's thinking reached Adamson, who decided to reach out to Andrew about his investment idea. He showed up at Andrew's office with a stack of spreadsheets showing that many companies with Democratic CEOs and progressive political leanings outperformed the overall market.

"It showed not only could you be good Democrat, a good progressive and a good businessperson — but that there was no contradiction between these things, as creative, progressive CEOs were more likely to succeed than conservatives," Andrew says.

"It was an 'aha!' moment. Obviously, I was gung-ho from that moment" about starting Blue Investment Management with Adamson.

"There's a built-in presumption that the Republican Party is the party of business. But as it turns out, the economy does better with Democrats in the White House and companies do better when they have a Democrat as CEO," Andrew maintains.

Blue Investment Management's "blue research" further discusses the claims made by Adamson and Andrew regarding progressive companies' historical financial performance and a performance analysis of "red" vs. "blue" executives and their companies.

Blue Fund's small-cap and large-cap index mutual funds use a screening format similar to many SRI funds, but also require that any corporation included has given at least 50 percent of its political contributions to Democratic organizations or candidates over the course of the past 10 years.

Fund managers call this "giving blue" and "acting blue." Hence the name "The Blue Fund."

"We're the first no-load, no-Republican fund," Andrew says.

The firm also provides a comprehensive companies listing , with scoring data. Investment details are listed in the fund's prospectus , which also breaks down the screening criteria, both subjective and objective. The prospectus also lays out the goals, presumed risks regarding the market and portfolio management, and fees associated with the large cap and small cap funds.

Adamson serves as the funds' portfolio manager; a new role for him.

"We look at the S&P 500 and Russell 2000, expose them to 10 screens: nine ethical, one political. Companies that pass all criteria are included in our portfolios. We regularly update, every six weeks or six months, depending on the nature of the screen," Adamson explains. "Democratic contributing companies are 15-20 percent of the S&P 500 (about 75 companies) and 15-20 percent of the Russell 2000 (about 370)."

The political donations are measured by percentage, not dollar amount — no minimum or maximum. Beyond the contributions rule, and strict limits on connections to tobacco and firearms, the fund managers provide wiggle room on the seven social screens.

"Our feeling is companies are like people — none are completely good or bad. We try to make our screening as transparent as possible," Adamson says. "Among 450 companies, undoubtedly, inevitably, someone will have problems with some of them. But they are generally consistent with values we list and show a true commitment to those values when it comes time to give politically."

Democratic-affiliated political strategist Simon Rosenberg is the founder of progressive political advocacy group NDN (formerly known as the "New Democratic Network"), where Andrew is an advisor. Rosenberg foresees many people interested in combining investment with positive social action, and envisions overtly politically based investing becoming more common.  

"I think this is the beginning of what could be a significant social movement of high-net-worth people being more vigilant that where they are investing is providing social, as well as financial, returns. (It's) the first of a cutting edge of a wave that's coming, particularly as boomers retire and try to give back in more meaningful ways," Rosenberg speculates.

The convergence of ideology and profit may be new to progressives, but is old hat for conservatives.

"The conservative movement can reach 30-40 million per week. It's profitable to sell the conservative message to a conservative audience: They have book publishers, radio shows, think tanks, a vast pool of private capital to advance the conservative agenda," Rosenberg says.

Progressives can also sell their messages to the market. He regards this as a challenge and opportunity, with huge potential.

"I don't see this being a niche product. There are millions who give to Democratic causes, progressive causes. A lot of middle-class donors are upset with the direction of the country, and looking to be part of political process," Rosenberg says.

Andrew supplements this claim with numbers outlining that potential pool. In the 2004 general election, he cites that 60 million voted Democrat and 10 million made contributions to Democrats.

Nevertheless, Rosenberg argues that conventional methods of social change — not-for-profit advocacy and grassroots activism — have some limits.
"Because of the tax structure in the United States, nonprofits are 501(c)(3)s, forbidden from political activity. There's a clumsy firewall between social action and partisan activity. Political advocacy has to artificially stop at a place decreed by the IRS," he considers. "But the truth is we have to be freer to discuss how the two parties address issues. This has to become part of the discourse of socially responsible investing."

Andrew addresses those who identify as leftist, perhaps more so than the Democratic Party platform.

"Tracking Democratic Party contributions is the easiest way to divide CEOs and companies into left and right. We want to be very welcoming — not pro-Democrat and anti-Green. For us, it's not just about party affiliation — that's why we use the term 'progressive,' " Andrew says.

Adamson goes as far as positing that the fund and its managers do not advocate political party contributions.
"I would be happy if corporations gave significantly less, or none at all, to candidates. But given that corporations do play a role in politics, we wanted to give progressives an opportunity to invest in a way consistent with their political values," he says.

"The Blue Fund is not put together to support causes. We're not endorsing individual policies and procedures at any companies. We are ecumenical for the entire progressive side, center left to far left. It's all better and the right direction opposed to the Republicans. That's important."