For decades, banks managing pensions and other institutions have practiced “social investing,” picking stocks in companies that meet ethical criteria. In the 1970s, some public pensions shunned IBM because the company did business in apartheid-era South Africa.
Domestic stocks have done well recently, but foreign stocks have soared. During the five years ending in October 2006, the average international stock fund returned 15.61% annually, about 8 percentage points ahead of the Standard Poor’s 500-stock index.
During the bull market that ended in 2000, investors learned that stocks can deliver big returns—and sudden losses. Since then, there has been a new spirit of caution, and funds that once seemed stodgy have enjoyed renewed demand. These include balanced funds, which typically hold a mix of blue-chip stocks and relatively safe bonds.
Real estate investments of all kinds have soared. During the five years ending on September 30, the average real estate mutual fund returned 21.9% annually. Now, however, housing sales are slipping, and some analysts say that prices of office buildings and shopping centers may be peaking.