KLD Celebrates First Anniversary of the Select Social Index

The KLD Select Social(^SM) Index turns one year old this month. The Index uses an innovative approach to balance social and environmental factors with financial risks.

The Select Social was constructed by factoring in the overall social and environmental record of the companies in KLD's universe of Russell 1000® and S&P 500® companies. The Index holds approximately 260 companies that enable it to behave like the Russell 1000 while maximizing exposure to positive social and environmental performance. It excludes tobacco companies, reflecting a broad consensus among institutional and retail investors.

The KLD SSI balances social ratings with financial risk. The Index’s optimization process selects index components by evaluating not only the social rating of the company, but also the financial risk that the company may add to the Index’s target of tracking the Russell 1000. Estimated tracking error of the Select Social Index is less than 200 basis points, and it is style-neutral and beta-neutral relative to the Russell 1000.

The end result is an index composed of lower weights of companies with poor relative ratings and higher weights of companies with good ratings, all while maintaining a risk profile similar to the Russell 1000. About 60% of the companies in the SSI are top-quartile social and environmental performers in their sectors, representing about 85% of the Index weight.

Barclays Global Investors, N.A. (BGI) launched the iShares KLD Select Social Index Fund (ticker: KLD) in January 2005. Tracking the KLD Select Social Index, it is the first broad market exchange-traded fund (ETF) for socially responsible investors in the US. The Fund has adopted proxy-voting guidelines that support social and environmental responsibility.

The Index addresses the concerns of some institutional investors about diversification in SRI portfolios. On March 31, 2005, the California Public Employee’s Retirement System (CalPERS) initiated an investment of $25 million in the iShares KLD Select Social Index Fund. This announcement indicates growing market acceptance of the innovative methodology in the Index.

KLD created the Domini 400 Social^SM Index (DSI) in May 1990 to provide real data on the financial performance of socially screened portfolios. The DSI is widely cited in studies about the performance implications of social screens. Now, the KLD Select Social Index will help answer new questions about the impact of social and environmental factors on risk and return.

Here are the Select Social’s performance numbers through May 31, 2005:

Source: Russell/Mellon Analytical Services and Dow Jones Indexes.   *Annualized Returns