Green funds can ease your conscience, fill your wallet
By Salvatore Caputo • Bankrate.com

With Earth Day in mind, you decide you'd like to put your money where your principles are. Well, here's good news. "Green funds," mutual funds that invest in environmentally responsible companies, can make you some folding green.

The bad news is that "green funds" and other socially responsible investment funds are heavily invested in the faltering tech sector, meaning they have taken it on the chin recently.

"If you want to find the companies that are the environmentally friendliest, have the most diverse labor practices, and things like that, you end up with a lot of tech companies," says Catherine Hickey, an analyst with Chicago-based Morningstar Inc., which tracks and rates mutual funds.

Doubly green funds
However, Hickey is quick to add that, as a class, socially responsible funds were doing well before the bears took over the world, a notion that challenges the conventional thinking that you can't do good and make good at the same time.

"Sometimes the logic that people use is that you automatically have to sacrifice total return to buy one of these things, but that's just not the case," she says. "As a group, what we've found over the last few years is that they're pretty competitive with the overall mutual fund universe, even to the point where they've outperformed slightly as a group."

True "green funds" -- those invested solely in environmentally friendly firms -- are a small subset of "socially responsible investing," also known as SRI. All SRI fund managers use criteria, known as "screens," to screen out or screen in a company based on its record on a variety of social issues.

"There aren't too many funds that are just green," Hickey says. She mentions two -- Green Century Balanced (Nasdaq: GCBLX) and New Alternatives Fund (Nasdaq: NALFX) -- that have performed well in the past.

Founded in 1982, the New Alternatives Fund bills itself as the first green fund. For the year 2000, the fund brought in a return of 51.76 percent. As of April 14, 2001, the year-to-date return was -4.31 percent, compared with -11.85 for the Standard & Poor's 500.

"I think it's important to realize that the fund focuses on a very small niche (alternative energy, recycling), and it has been fairly volatile over its lifetime," Hickey says. "Even though it was in the second percentile in 2000, it's been a more iffy prospect over its lifetime. So if you're going to buy into that one, you're going to have to really believe you want exposure to that part of the market, and I would say allocate a pretty small portion of your portfolio to it."

Green Century Balanced, a small-cap growth fund, had a total return of 13.24 percent for 2000 and a whopping 76.39 percent in 1999. As of April 14, 2001, its year-to-date return was -18.27 percent, compared with -11.85 for the S&P 500 in the same period.

Seeing through the screens
Although few SRI funds focus solely on the environment, 79 percent of SRI funds use environmental screens to guide their investing, says Todd Larsen, media director of the Social Investment Forum, a Washington, D.C.-based group that tracks and advocates socially responsible investing.