Blog of Q's

from the Wall Street Journal Online

Sky-high oil prices haven’t been kind to mutual funds with a mandate for socially responsible investing.

Over
the past 12 months, equity funds with a socially responsible bent have
gained 11.54%, nearly four percentage points less than the average for
all equity funds, according to investment-research firm Lipper. Over
three years, it’s an annualized 17.2% for socially responsible
portfolios versus 20.67% for all equity funds. SRI equity funds account
for only 0.62%, or $32.4 billion worth, of all equity-fund assets.

Though
criteria vary, socially responsible funds generally avoid sectors that
go against certain ethical guidelines. The biggest such sectors are
alcohol, tobacco, defense, pornography and gambling.

¹ SOCIALLY RESPONSIBLE FUNDS

 

• These nine funds are² top performers in their categories and have low costs.
 
MORE ON FUND SCREENS

 

For more information about Fund Screens, sign up for a free trial at www.smartmoney.com/wsj_fund³.

Energy
stocks, particularly those that focus on fossil fuels like oil and
coal, also violate the tenets of many socially responsible funds. Much
of the group’s underperformance of late can be attributed to its
relative distaste for the energy concerns that have led the market for
the better part of three years. The top two funds on our screen this
week, Ariel Fund and Ariel Appreciation, eschew the sector entirely.

But
before we paint socially responsible funds into the
too-constrained-can’t-compete corner, it’s worth noting that Lipper
only requires that they include some sort of moral criteria in their
investment philosophy. That’s a pretty low entry barrier that leaves
room for a large amount of discretion from fund to fund — and a lot of
stock-picking options for most socially responsible fund managers.

This
week, we searched for equity-fund portfolios tagged with the socially
responsible investing label. We demanded five-year returns in the top
50% of each fund’s classification and expense ratios in the bottom 50%.
Each of the nine no-load funds on our list is open to new investors,
requires a minimum initial investment of $5,000 or less and has total
net assets of at least $50 million.