Mutual Funds That Matter

Though many socially conscious mutual funds have screens for environmental issues and do shareholder activism, there are only half a dozen that make environmental issues a priority.

One of those (which is also on a hot streak) is Winslow Green Growth Fund, an "aggressive" growth fund—meaning it buys mostly younger, growing companies, which tend to be volatile. For the year ending November 30, the Winslow Green Growth Fund was up almost 70 percent, more than doubling the returns of its small company benchmark index. As Winslow sees it, there’s no need to compromise between financial glory and being green. Its website lists 14 studies that indicate eco-savvy companies do better than other businesses. The reasoning makes sense: Environmentally sensitive businesses are likely to be forward thinking, more efficient, less wasteful, and less susceptible to litigation, all characteristics that make for successful companies.

<i><b>Statistical analyses reveal that green mutual funds often produce results that exceed such standard indicators as the S&P 500.</b></i>© Photo to Go

Winslow Management Company, a division of the Boston-based Adams, Harkness and Hill, also manages the Green Century Balanced Fund, which buys both stocks and the bonds that can help to stabilize returns in down markets. Not surprisingly, both Winslow Green Growth Fund and Green Century Balanced Fund hold many of the same stocks, such as the water purification company Ionics. As a result, the Green Century Balanced Fund also achieved eye-popping returns of 61 percent through September 30 of last year.

What some may find surprising is that only a minority of investments held in these "green" funds are in explicitly eco-focused businesses. Most holdings are more traditional businesses deemed excellent by Winslow, such as the medical company PolyMedica.

Winslow portfolio manager Jack Robinson believes "that every company has the potential to be a green company"—an outlook shared by other funds, including the recently launched Sierra Club Funds. Among the top five holdings of the Sierra Club stock fund are Best Buy, Dell, Estee Lauder and Charles Schwab. The Sierra Club’s goal is to make full use of its shares under management for shareholder activism. The group, for instance, has bought shares in large building companies, looking to direct them away from farmland, forests and other open spaces.

The most obviously environmental stock fund, which "seeks to be the greenest fund in America," is the New Alternatives Fund, which has a special interest in alternative energy, such as fuel cell, wind and solar energy companies. The problem, unfortunately, has been its performance. In 2000, New Alternatives produced market-trouncing 51.5 percent returns, but otherwise it has tended to seriously lag the returns of other funds. According to its latest prospectus, through 2002 the fund’s 10-year annual return was 2.64 percent.

For eco-investors interested in owning global companies, Portfolio 21 (as in 21st century) applies shareholder activism and Natural Step-inspired filters to public companies throughout the world. "The quality of its environmental screening is very high," says Jay Falk, president of SRI World Group. Since its inception in September of 1999, Portfolio 21 has consistently beat its benchmark performance comparison index, MSCI World Equity Index, by about three percent.

If you prefer an index fund that closely matches the returns of the benchmark Standard & Poor 500, your choices are Citizens Index Fund and Domini Equity Fund. Domini is the original and largest SRI index fund and has been a leader in shareholder activism. Citizen’s environmental screens are a bit stricter than Domini"s.

—M.G.