Q. I believe in socially responsible investing, but there are so many different funds. What is your opinion of Parnassus Equity Income Fund?
V.M., via the Internet
A. The fund doesn’t simply screen out stocks that aren’t environmentally friendly, that make weapons or that sell alcohol or tobacco, it seeks out companies that it believes treat employees well, promote workplace diversity or engage in philanthropy.
It has a dividend emphasis, too, with about 80 percent of the stocks in its portfolio paying one.
It had a large cash stake in 2002 and 2003, which was a plus during the bear market but a drag as the market rallied. It has since pledged to stay fully invested.
The $892 million Parnassus Equity Income Fund (PRBLX) is up 17 percent over the past 12 months to rank in the lower one-half of large growth and value funds. Its three-year annualized return of 11 percent places it in the lowest one-fourth of its peers.
“We like portfolio manager Todd Ahlsten, but there are better-performing socially responsible funds with more proven management teams and strategies that have been in place longer,” said Dan Lefkovitz, analyst with Morningstar Inc. in Chicago. “Ultimately, we don’t recommend this fund.”
Ahlsten, who took over Parnassus Equity Income in mid-2002, had been named co-manager the previous year. Ahlsten is heavily invested in the fund. After employing the social filters, he is assisted by five analysts in selecting stocks based on his estimate of their intrinsic value. He invests across stock sizes and sectors.
“The fund’s strategy is growth at a reasonable price,” said Lefkovitz, who believes Ahlsten has yet to prove he can consistently add value compared with the indexes.
More than 20 percent of the fund’s assets are in financial services; health care and energy each represent 17 percent.
This “no-load” (no sales charge) fund requires a $2,000 minimum initial investment and has a reasonable annual expense ratio of 0.99 percent.
Q. A few years ago, I bought a stock with a margin loan. Should I pay off the loan or continue to pay the margin interest? Are there tax consequences of which I should be aware?
J.S., via the Internet
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A. You can deduct a margin account’s investment interest expense, though the deduction is limited to your income from investments. That deduction makes margin loans preferable to credit card debt.
“If you have higher interest-rate debt than the margin loan, pay off the higher interest first,” said David Bendix, certified financial planner and certified public accountant with Bendix Financial Group in Garden City, N.Y. “If that’s not the case, and you also have extra money to pay off the margin loan without having to sell any of the stock, it could make sense to pay it off.”
Margin borrowing increases your market risk, and you must repay the loan regardless of the underlying value of the securities. If the stock falls below minimum price requirements, you will be asked to deposit additional cash or acceptable collateral. If you fail to meet that call, the brokerage may sell some or all of your securities to protect its loan.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoney @tribune.com.