Meet 5 Fund Companies That Care

So you're interested in socially responsible investing (SRI). Good for you! Once you learn about companies involved in unpleasant activities even to a small degree, it can be hard to stomach investing in them. Of course, people have different thresholds and standards: You might not want to be anywhere near supporting genocide in Darfur, but not be so bothered about investing in Wal-Mart (NYSE:WMT), a company sometimes accused of not being generous enough with its employees.

One way to ease your conscience is to invest in mutual funds that screen out objectionable investments. Here are five major fund companies in the SRI mutual fund arena:

• Appleseed
• Calvert
• Domini Social Investments
• Pax World
• Winslow

Stocks that pass the test
To give you an idea of how these kinds of funds choose the stocks they invest in, here's how the Appleseed folks describe their approach in the fund's prospectus:

The adviser believes that socially responsible companies present less business risk for investors and create opportunities to contribute to a more sustainable society. The Fund will not invest in companies that derive substantial revenues from the tobacco, alcohol, pornography, gambling or weapons industries, as determined by the adviser. The Fund will also consider a company's performance with respect to environmental responsibility, labor standards, and human rights.

Domini explains that it holds its investments to high standards and believes that companies will enjoy long-term prosperity if they do the following:

• Contribute to the communities in which they are located.
• Produce high-quality, safe, and useful products.
• Enrich the ecosystems on which they depend.
• Invest in the health and development of their employees.
• Treat their investors and lenders openly and transparently.
• Strengthen the capabilities of their suppliers.

For example
Here are some of the funds from the families above that you might want to look into (I'll include information on Vanguard's S&P 500 index fund (VFINX) for comparison):

Data: Morningstar.com. Returns are average annualized over given period.
*Plus load.

Naturally, there's more that you'll likely want to look at before investing in any of these, such as their managers' philosophies and track records, minimum investment amounts, and perhaps the funds' dividend yields.

On the other hand ...
Of course, many SRI funds leave a little to be desired. The ones I listed above, for example, haven't blown away the competition with strong performance. Many are trailing the S&P 500. Like any other managed mutual fund, all charge considerably more per year in fees than an inexpensive index fund. With several of these funds, you're behind by a full percentage point or more just from fees alone.

Moreover, the Calvert Social Index fund charges a hefty sales load of up to 4.75%. Invest $10,000 in the fund and you'll surrender $475 before you get a dollar's worth of performance.

And here's another consideration: Any given SRI fund may not actually be quite as socially responsible as you would want it to be. Coca-Cola, for example, can be found in various SRI funds, but some might object to that, considering that the company makes its money offering many non-nutritious products that can contribute to poor health.

So go ahead and invest in SRI funds, if you're so inclined. They will winnow out many objectionable companies for you, and many of them sport returns at least close to those of the S&P 500. Or invent your own style of social investing, focusing on the issues that matter most to you.

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