`Socially Responsible' Investing: Putting Principle before Principal?

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PORTSMOUTH, N.H. -- David Ward thought "socially responsible" investing was financially irresponsible -- until he was convinced to give it a shot.

The Fort Myers, Fla., investor learned he could buy mutual funds that avoided ties to tobacco, alcoholic beverages or gambling -- which he and his wife had opposed -- yet not sacrifice profit for principle.

He chose Citizens Index Fund, which was started in 1995 by Portsmouth-based Citizens Funds. Even with the recent stock market turmoil, the fund had a year-to- date return of 11.97 percent by the end of the third quarter and 24.83 percent over three years, according to Morningstar. By comparison, the average return for large-cap mutual funds, including both value and growth stocks, was minus 2.98 percent and 17.78, Morningstar said. "If the bottom line wasn't there, I might have compromised my principles," admitted Ward, who was convinced to give social investing a try by his 23-year-old son Brian. Citizens Index has earned high ratings as well. Morningstar gave it five stars and Lipper Analytical Services rated it No. 11 among 109 domestic index funds for the three-year period ending Sept. 30. A similar fund, the Domini 400 Social Equity fund, also has outperformed the average for large-cap funds this year. It returned 6.71 percent by the end of the third quarter and 23.02 percent over three years, according to Lipper. While not all socially responsible funds are rated highly for financial performance, the longer-term success of funds like Citizens Index and Domini has been earning the fund sector some grudging respect. "I do think it will gain broader acceptance. It already has," said Laura Lallos, a senior analyst at Morningstar. Of the 10,000 mutual funds Morningstar tracks, 62 advertise themselves as socially responsible. (The first socially responsible fund -- Pax World Fund -- was started in Portsmouth 27 years ago.) What's considered "socially responsible" has varied over the years. Some funds are concerned primarily with protecting the environment; they won't invest in utilities that own nuclear power plants or engage in clear-cut logging, for example. Other funds screen out so-called "sin" stocks, or stocks of companies involved with tobacco, alcohol, gambling and weapons manufacturing. Still others screen companies for labor practices or use of animal laboratory testing. The Citizens Index Fund, one of several socially responsible stock and bond funds offered by Citizens Funds, includes 200 companies from the Standard & Poor's 500 index, along with 100 other companies that meet Citizens' social standards. …

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