from the Wall Street Journal Online
February 14, 2006; Page D2
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.
• These nine funds are2 top performers in their categories and have low costs.
MORE ON FUND SCREENS
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.
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