Guided by Conscience And Keeping Pace

The managers who put together SRI portfolios start with specific investment screens. Typically, they reject some industries wholesale, such as tobacco, liquor, gambling and weapons suppliers, as well as companies with poor records on human rights and employee relations. They apply traditional securities analysis to the stocks remaining on the list.

From this, it might appear that SRI funds aren't sufficiently diversified. But when you think about it, neither are conventional funds that tilt away from the broad market indexes for one reason or another. They, too, make bets on favored industries or countries.

Over a market cycle, SRI and conventional funds perform about the same, Statman says. With either type, your returns depend primarily on the classic metrics, such as investment style, sector allocations and the amount of money invested abroad.

Some of the newer SRI mutual funds diversify across all industries, even traditional baddies such as metals and weapons. In those black-hat sectors, the managers look for the best of class -- meaning, for example, companies actively cleaning up pollution problems (as opposed to ones ignoring the stink).

Since the Enron collapse, SRI managers are paying more attention to corporate governance. Green screens for climate change and alternative energy sources are also attracting investors, especially younger ones.

Where can you find investment managers who will pay attention? Socialinvest.org and Socialfunds.com list SRI mutual funds as well as some of the brokers and planners who specialize in the field. Two companies offer SRI index funds -- Vanguard Group and Calvert Group.

You will find more adviser names at First Affirmative Financial Network ( http://firstaffirmative.com) and Progressive Asset Management ( http://progressiveasset.com). First Affirmative designs SRI portfolios for the clients of affiliated brokers and planners and manages the money. Progressive Asset researches and screens companies, provides SRI stock indexes and develops new products.

The many boutique social-investment firms include Boston Common Asset Management and Trillium Asset Management. Some large institutions, such as Wells Fargo, offer SRI-managed accounts to wealthy investors.

For those who sneer at the choices of the social and religious funds, I offer an anti-SRI: the red-hot Vice Fund, founded in August 2002, near the start of the latest bull market and now managing $177 million in assets. Vice doesn't make nice and doesn't diversify. It revels in global gambling, tobacco, liquor and defense (Altria Group, Diageo, Boeing and MGM Mirage). In the five years through December, Vice beat the Russell 1000 index by 7.42 percentage points a year.

Deep in our SRI hearts, we knew that would happen, didn't we? Conscience is comforting, but in the real world, sin wins.

Jane Bryant Quinn, author of "Smart and Simple Financial Strategies for Busy People," is a Bloomberg News columnist.