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“Socially responsible” funds can go boom and bust, just like any other investment

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By Carl Winfield

“Socially responsible” funds can go boom and bust, just like any other investment

Socially responsible investment funds have come a long way since the first ones started showing up more than 30 years ago. Those early funds limited investments to companies that did not sell alcohol, tobacco, or firearms. Today's funds are more proactive. This change hit home almost a decade ago when former California State Treasurer Philip Angelides began using his state's $300 billion investment portfolio to promote ecological responsibility among corporations, greater access to housing, and human-rights causes.

But good intentions do not always translate into high profits. Boston-based KDL's Domini 400 Social Index, which tracks environmental, governmental, and social factors, has returned a negative 11.22% through June, compared with a negative 10.49% for the Standard & Poor's 500-stock index. The Ariel Fund (ARGFX ), one of the largest U.S. socially responsible funds, with more than $2 billion in assets, dropped 20.2% though May. However, the median performance of socially responsible funds compiled by Morningstar performed better than the S&P 500 for this year through June 24, –6.76% vs. –9.59%.

As with any investment, there are booms and busts. Skyrocketing petroleum prices may drive up oil-company stocks, which some socially responsible funds avoid; on the other hand, that may spark a greater interest in renewable fuels and green technologies, two areas of heavy fund interest. Here's a look at some of the biggest socially responsible funds, their investing strategies, and their returns.