KLD and Russell/Mellon to Offer Benchmarks for Screened Investments

Kinder, Lydenberg, Domini & Co., Inc. (KLD) announced today the introduction of the KLD Large Cap Social Index (LCSI), which is modeled on the Russell 1000 Index. The development and launching of the LCSI is part of a comprehensive agreement between KLD and Russell/Mellon Analytical Services to jointly market indexes and tools for analyzing the performance of screened investments.

“For the first time, institutional investors have access to the same caliber of performance analytics for their domestic screened portfolios that they expect for unscreened portfolios,” said Peter Kinder, KLD’s president and co-founder. “Now managers can compare ‘apples to apples’ using performance attribution data from Russell/Mellon.”

KLD’s index family now consists of three benchmarks: its now-famous Domini 400 Social Index (DSI 400); the Broad Market Social Index (BMSI), which is based on the Russell 3000 Index and is the largest screened index in the world; and the LCSI. KLD said it is planning to launch a screened Russell 2000 Index and several custom indexes in the near future.

The LCSI is based on the Russell 1000 Index, which measures the performance of the 1,000 largest companies in the Russell 3000 Index. The average market capitalization of Russell 1000 companies was approximately $14.1 billion as of the latest reconstitution. The smallest company in the index had a market capitalization of about $1.6 billion.

KLD’s LCSI comprises approximately 700 companies selected from the Russell 1000 that have passed KLD’s screens. Those screens exclude companies that derive certain levels of revenue from alcohol, gambling, tobacco, weapons-related contracting and nuclear power.

The Russell 1000, 2000 and 3000 indexes are three of the 21 U.S. equity indexes developed by the Frank Russell Company. These indexes serve as measurements against which money manager and mutual fund performance can be evaluated. More than $175 billion is invested in passive index funds that use Russell Indexes as their models. Russell/Mellon, which is a joint venture of the Frank Russell Company and Mellon Financial Corporation, produces and maintains the Russell Indexes and provides data and analytics to the financial industry.

“When we adopted the Russell universe, we expanded our universe five-fold,” said KLD Index Services Manager Zoë Van Schyndel. “KLD can now create market and custom benchmarks based on 98 percent of US market capitalization,” she added.

With the introduction of more indexes, new socially responsible index funds may be on the horizon. But even more than spawning a proliferation of social index funds, KLD’s new indexes may have a greater impact in promoting wider acceptance of screened investments. With ‘apples to apples’ comparisons of screened and unscreened benchmarks, such as the LCSI and the Russell 1000, conventional investors may find more reasons to put their money in social funds.

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