TIAA-CREF to Offer a Way to Invest With Heart Without Losing Your Wallet
The company known for pensions will branch further out into mutual funds this spring with five new funds, including a low-cost socially responsible offering.
Market Update
Pension fund giant TIAA-CREF plans to roll out a new socially conscious fund in April that could make other responsible offerings look, well, irresponsible.
In an effort to expand its two-year-old retail operation, New York-based TIAA-CREF will introduce five new mutual funds in April, including a low-cost, no-load socially responsible equity fund, said Dennis Foley, TIAA-CREF's vice president of annuities and mutual funds. Foley would not say exactly how low it will go, but vowed the fund will carry an expense ratio significantly lower than the average of other offerings that invest with their hearts as well as their heads.
Domestic-equity funds with a social responsible flavor have an average expense ratio of more than 1.5%, and even the socially screened index funds available charge near 1% or higher. If TIAA-CREF keeps its promise and beats those averages, its new socially responsible vehicle could land like a gauntlet at the feet of its brethren. "I think this is going to be a really big wake-up call to the rest of the socially responsible funds," said Morningstar fund analyst Kunal Kapoor.
There's no reason to think TIAA-CREF won't keep its word. With a total of $273 billion in assets, the manager of pension funds for academics has earned a reputation for keeping costs low. The six retail mutual funds it rolled out two years ago now have $2 billion in assets, and all of them boast expense ratios dramatically lower than their peers'. So it wouldn't be surprising if TIAA-CREF proves it can run a socially responsible fund much cheaper than its rivals can. "I imagine it'll undercut them pretty significantly," Kapoor said.
The new socially responsible fund and the four other proposed vehicles round out TIAA-CREF's retail offerings and make it more competitive with low-cost fund leader The Vanguard Group. They also answer the demands voiced by TIAA-CREF's 2 million pension plan participants, Foley said. Since TIAA-CREF opened its first six mutual funds two years ago, shareholders have asked for a broad index fund and more fixed-income offerings to invest in outside of their retirement programs.
Morality-based investing has always been popular with TIAA-CREF's core constituency of educators. The social choice fund it offers in its pension plan has $4 billion in assets and shuns tobacco, alcohol, weapons, and nuclear energy stocks, as well as businesses that don't abide by the McBride Principals, which set fair employment standards for Northern Ireland. The new social fund will use the same criteria.
The other new funds include high-yield, short-term, and municipal bond funds, and TIAA-CREF's first index fund. The index will ape the Russell 3000 instead of the S&P 500 because the Russell 3000 represents 98% of the stock market and includes many of the small and midsize companies left out of the S&P, which covers 80% of the market.
"It's a wonderful proxy for the U.S. stock market," Foley said. "We really feel that the broader-based index is really the one people should focus on."
Like the new socially responsible fund, the index and bond funds will aim for the cheap end of the cost scale. "They're all going to be low," Foley said. "They will be among the lowest in their categories."
In an effort to expand its two-year-old retail operation, New York-based TIAA-CREF will introduce five new mutual funds in April, including a low-cost, no-load socially responsible equity fund, said Dennis Foley, TIAA-CREF's vice president of annuities and mutual funds. Foley would not say exactly how low it will go, but vowed the fund will carry an expense ratio significantly lower than the average of other offerings that invest with their hearts as well as their heads.
Domestic-equity funds with a social responsible flavor have an average expense ratio of more than 1.5%, and even the socially screened index funds available charge near 1% or higher. If TIAA-CREF keeps its promise and beats those averages, its new socially responsible vehicle could land like a gauntlet at the feet of its brethren. "I think this is going to be a really big wake-up call to the rest of the socially responsible funds," said Morningstar fund analyst Kunal Kapoor.
There's no reason to think TIAA-CREF won't keep its word. With a total of $273 billion in assets, the manager of pension funds for academics has earned a reputation for keeping costs low. The six retail mutual funds it rolled out two years ago now have $2 billion in assets, and all of them boast expense ratios dramatically lower than their peers'. So it wouldn't be surprising if TIAA-CREF proves it can run a socially responsible fund much cheaper than its rivals can. "I imagine it'll undercut them pretty significantly," Kapoor said.
The new socially responsible fund and the four other proposed vehicles round out TIAA-CREF's retail offerings and make it more competitive with low-cost fund leader The Vanguard Group. They also answer the demands voiced by TIAA-CREF's 2 million pension plan participants, Foley said. Since TIAA-CREF opened its first six mutual funds two years ago, shareholders have asked for a broad index fund and more fixed-income offerings to invest in outside of their retirement programs.
Morality-based investing has always been popular with TIAA-CREF's core constituency of educators. The social choice fund it offers in its pension plan has $4 billion in assets and shuns tobacco, alcohol, weapons, and nuclear energy stocks, as well as businesses that don't abide by the McBride Principals, which set fair employment standards for Northern Ireland. The new social fund will use the same criteria.
The other new funds include high-yield, short-term, and municipal bond funds, and TIAA-CREF's first index fund. The index will ape the Russell 3000 instead of the S&P 500 because the Russell 3000 represents 98% of the stock market and includes many of the small and midsize companies left out of the S&P, which covers 80% of the market.
"It's a wonderful proxy for the U.S. stock market," Foley said. "We really feel that the broader-based index is really the one people should focus on."
Like the new socially responsible fund, the index and bond funds will aim for the cheap end of the cost scale. "They're all going to be low," Foley said. "They will be among the lowest in their categories."