Ann Alexander puts her heart as well as her money into mutual funds. Socially responsible investing is her passion. The Chapel Hill woman's mission is convincing everyone to invest in ways that reflect their core values.
In 1991, Alexander and her husband sold Wellspring Grocery, a popular Durham-based fresh-foods business, to the Whole Foods Market chain. The price wasn't publicly disclosed. Alexander says only that it was "a nice chunk of money."
It was the first time the couple had money to invest. Alexander, who ran the grocery's business side for 10 years, had to search for a financial adviser who would do it her way.
Seventeen years later, she says all her money is invested in SRI, shorthand for socially responsible investments. She's a consultant who talks to nonprofit boards and individuals about investing in values.
SRI consciously directs money toward enterprises that contribute to a clean, healthy environment, treat people fairly, produce safe and useful products, and support efforts for world peace, according to proponents.
Its critics say that excluding some industries, such as military and oil companies, from portfolios, limits investing and profit-making opportunities.
More on that later.
Behind the growth
Alexander spent Tuesday at a Charlotte seminar with a couple of dozen financial planners, mutual fund representatives and others involved in SRI. They talked about its growing clout.
Just a dozen years ago, SRI had the reputation of a fringe industry attracting hippie-type do-gooders who didn't care much about making a profit, Alexander said.
Domini Social Equity fund, started in 1991, pioneered the concept of excluding manufacturers of harmful products, such as tobacco, alcohol and gaming devices. It also uses environmental criteria in selecting stocks.
SRI assets in funds have exploded from $639 billion in 1995 to $2.7 trillion in 2007. That's an increase of 324 percent, according to industry tracker Social Investment Forum.
During that same period, the number of socially screened funds has jumped from 55 to 260, said speakers. Nearly one out of every nine dollars under U.S. professional fund management is involved in SRI.
What's behind the growth? Speakers at the conference gave different reasons. The number of funds is growing, more investors are learning about SRI and more people want to support green businesses as concerns grow about climate change.
Proponents estimate that 60 percent of socially conscious investors are women. Women get it, said Alexander, when they hear about an Enron's misdeeds, or about companies that use child labor, or those that foul the environment.
Mary Rinehart, a certified financial planner whose Charlotte firm Rinehart & Associates offers SRI management, said she began studying it eight years ago after a female client asked about it.
Her clients are mostly traditional investors who are often receptive to hear about SRI opportunities, she said.
"Everybody has a passion about something," Rinehart said.
The good, the bad
But can you make profits from your passions?
David Kathman, an analyst with Morningstar who tracks SRI mutual funds, said, "Socially responsible funds are such a diverse group that it's hard to make a judgment on how well they do.
"Comparisons are not all that helpful," he added.
One downside, he says, is that some SRI funds screen out industrials and energy funds, and are overweight in other areas, such as technology stocks. That worked well in the late 1990s, he said. But now those funds are trailing.
Financial planners at the Charlotte meeting said SRI funds do about the same over time as traditional funds. But you often need to give them longer periods to weather market swings.
For instance, they concede, since the Iraq war began, many SRI funds have done poorly because they don't invest in defense contractors.
More than money
Alexander said she'll keep pushing her message that SRI accomplishes more than making money.
"It's not just that we want to do good with SRI," she said. "More people are realizing that how companies do business affects their bottom line."
The other direction
SRI funds usually exclude so-called sin stocks. But there's one mutual fund that specializes in them. The $177-million Vice fund invests in alcohol, gaming, tobacco and defense. Defense doesn't fit the traditional definition of sinful, but most socially screened funds don't include the industry. Top holdings include Altria (cigarettes), Diageo (liquor) and British American Tobacco. Vice gained nearly 18 percent in 2007, compared with the S&P 500's 5.5 percent return.
SRI principles
Socially responsible investing dates back to biblical times, when Jewish law instructed people how to invest ethically. In the 1700s, John Wesley, the founder of Methodism, emphasized New Testament teachings about using money. Today, SRI is based primarily on three principles:
• Screening analyzes corporate policies, practices and attitudes on profit potential.
• Shareholder advocacy focuses on engaging with companies to positively influence corporate behavior.
• Community investing directs capital to people in low-income areas to fight poverty and support affordable housing.
Source: First Affirmative Financial Network
For more information
The five largest SRI fund families: Calvert: www.calvertgroup.com
Pax World Mutual Funds: www.paxworld.com
Domini Social Investments: www.domini.com
Parnassus Investments: www.parnassus.com
MMA Praxis Mutual Funds: www.mma-online.org
To learn more about SRI and compare other results: www.socialinvest.org.
Is SRI profitable?
David Kathman, a Morningstar analyst who follows SRI funds, says it's hard to generalize because the number of funds involved stands at about 260 and because they vary in what they choose to embrace or exclude in portfolios.
Here are the five biggest SRI funds, ranked by the Social Investment Forum, with their annualized performance for the last five years. In the same period, the S&P 500 gained an average of 10.6 percent per year:
| Name of SRI | Top holdings | Assets | Average annual return, last 5 years |
| Ariel Fund | Markel (insurance), Hewitt (human resources), Idex (life sciences) | $2.95 billion | 8.77 percent |
| Pax World Balanced | Deere (farm equipment), CVS (retail), Cisco (tech) | $2.29 billion | 9.79 percent |
| Ariel Appreciation Fund | Accenture (consulting), Baxter (health care), Northern Trust (finance) | $1.871 billion | 9.41 percent |
| Parnassus Equity Income Fund | Johnson & Johnson (consumer products), Microsoft (tech), Danaher (medical tech) | $882 million | 9.91 percent |
| Calvert Social Investment Equity A | FMC Technologies (energy tech), Cisco Systems (tech), EOG Resources (energy) | $877 million | 9.31 percent |
