In this article: Top domestic stock funds How to pick one

nvestors who want to be socially responsible often have made a trade-off: a clean conscience vs. good performance. Steer clear of mutual funds investing in alcohol, tobacco, weapons or nuclear power - pick only funds that adhere to a strict social agenda - and you'd likely lose money. Not anymore.

Today there are some 200 mutual funds in the socially responsible investing world, says analyst Stephanie Kendall at Wiesenberger, a Rockville, Md., research firm. That includes "green funds" and funds that screen according to religious or moral principles (for instance, opposition to abortion). On average, they perform on par with funds overall, with a few far outperforming funds overall. Socially screened large-cap growth and growth-and-income funds (combined) averaged a 20.69% return over the past three years, vs. unscreened funds' 19.83%.

What you need to know:

How these funds work. They start out like traditional funds, by picking companies for financial reasons. Then they apply a second screen, to weed out companies that do something they find unacceptable, such as manufacturing guns or excluding gay partners from health benefits. There are also socially responsible index funds, notably the Domini Social Equity fund and the Citizens Index fund, both of which have received the top rating from Morningstar. These screen the S&P 500 to weed out unacceptable companies, then add back acceptable companies.

Top domestic stock funds that screen for social issues

FUND (Category)	RETURN 1-yr.	(%) 3-yr.*
Noah Fund (Growth)	50.75	-
IPS Millennium Fund (Growth and income)	45.54	34.49
USAA First Start (Growth)	31.89	-
Citizens Index Fund (Growth)	30.39	35.47
American Trust Allegiance (Growth)	30.35	-
S&P 500 (for reference)	18.47	28.08

*Note: Some funds are too new to have three-year returns.

What they invest in - Noah: screens out companies with business in pornography, abortion, alcohol, gambling and alternative lifestyles. IPS Millennium: focus on animal rights. USAA First Start: traditional social investing. Citizens Index: screens for alcohol, tobacco, gambling, weapons, nuclear power, etc. American Trust Allegiance: Christian Scientist fund that avoids medical firms.

Advantages? "Say you're interested in the environment. Whether you buy a company that believes in recycling or practicing energy efficiency, you'll see that positively impact the bottom line in the long run," says Citizens Funds VP Joe Keefe. "The same is true of companies that invest in their own workforce by allowing flex time or other opportunities." Many people believe companies conscious of avoiding labor or environmental problems are less likely to be a target of lawsuits.

How to pick one. Figure out what matters to you in terms of social qualifications as well as investment objective and performance - then find the fund that fits best. To see what sort of screens a fund applies, visit www.socialinvest.org.

Source: Wiesenberger