I.A.M. FUND INVESTS IN COMPANIES FRIENDLY TO MACHINISTS: STATE ST. BANKS ON UNION LABEL

State Street Corp., the top U.S. pension manager, has come up with a new turn in socially aware investing.

The Boston bank’s Global Advisors unit is hawking a mutual fund called IAM Shares. Its portfolio will comprise primarily companies that employ members of the International Association of Machinists, the largest member of the AFL-CIO.

The no-load fund, which the company believes is the first of its kind, is still in registration, but plans are to open it in June to the union’s 734,000 working and retired members. State Street won’t advertise the fund to non-members, but won’t refuse any $10,000 initial investment.

“I see it as a niche market that has appeal to a large group of people in the U.S.,” says Gus Fish, a principal in State Street Global Advisors.

The fund, which expects to hold 200 to 250 stocks, will invest 65% of its portfolio in machinists union-friendly companies picked from a list of 232 provided by the union. It includes General Electric Co. Inc., Boeing Co., Harley-Davidson, UAL Corp. and Northwest Airlines Corp. The remaining 35% will be invested in financial services, high-tech and pharmaceutical companies.

“It makes sense for our members to invest in companies they work for, giving them more opportunities for employment and leverage to exercise proxy voting abilities,” says Steven Sleigh,the union’s director of strategic resources.

Observers are taking a wait-and-see approach. With more than a third of assets invested in companies that aren’t necessarily union-friendly, how different will it really be from the run-of-the-mill mutual fund?

“Part of it will be how true to the spirit of the fund the portfolio manager chooses to be,” says Don Phillips, president of Morningstar Inc. in Chicago.

One financial adviser says she’s considering recommending the fund to a machinist client, but agrees the investment strategy is limited. “It’s difficult to be negative until we give it an opportunity,” says Linda Barlow of Santa Ana, Calif.

Though this is the first fund to target a specific group of blue-collar workers, other socially aware portfolios follow screening policies to avoid companies that have bad track records with unions.”I think it is a very interesting concept,” says Joe Keefe, an executive vice president at Citizen Funds in New Hampshire. “We actually find that companies that have good employee relations and benefits are a sign of better management and in the long run make for better investments.”