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By Landvista, August 19, 2010 11:54 am

The Gulf spill renewed interest in socially conscious investing. Here’s a look at some of those funds.

By DAVID PITT, Associated Press

Last update: August 7, 2010 – 5:34 PM

Buying a stock because the company is eco-friendly or promotes social programs is a priority for a small but dedicated segment of investors. And events like the Gulf oil spill tend to prompt even more people to at least consider socially responsible investing, or SRI.

“BP, of course, did a lot to heighten interest in our industry” and in some of these larger environmental risks, said Peter DeSimone, director of programs at the Social Investment Forum. “It just made people more aware.” The forum is a trade group that includes banks, investment groups, consultants and mutual funds participating in SRI.

Socially responsible investors traditionally support funds investing in companies that steer clear of alcohol, tobacco and weapons. But, increasingly investors are seeking out positive attributes such as a good environmental record or proactive human rights policies.

In the 1990s barely 100 SRI mutual funds existed. That’s doubled to around 200 funds now, DeSimone said. Still, that’s a small fraction of the more than 4,600 stock mutual funds on the market.

SRI investors remained committed to the principles they supported through even the worst market turbulence. Inflows for socially responsible funds remained positive throughout 2008 when investors were pulling out of stock funds in massive numbers. All told, SRI funds captured $700 million, while nearly $96 billion was pulled from stock mutual funds. That’s a relatively small figure, but significant in that it ran counter to the stock selling trend, said Kathryn Young, a fund analyst with Morningstar Inc. SRI mutual funds typically fall into three categories: faith-based, environmentally conscious and secular funds.

KLD Indexes, which measures the performance of companies screened for environmental and social issues, shows returns comparable to the S&P 500 over three and five years. However, the index has fallen slightly behind the broader market over the past year and continues to lag slightly in recent quarters. Here’s a look at a few SRI mutual funds.

Faith-based funds

Faith-based funds screen out various negative attributes depending on the religious principles they’re designed to follow. Some also include companies with positive track records on social issues.

• Amana Trust Income (AMANX) caters to Muslim investors, so it excludes companies profiting from alcohol, tobacco, gambling, pornography, pork products or banking (because they may profit from the excluded vices). The highly rated fund’s returns easily beat the S&P 500 over time primarily because of no exposure to the financial services sector, which was slammed hard in the stock market collapse of 2007-2008. At the end of July, on a three-year annualized basis it posted a loss of less than 1 percent, while the S&P 500 fell 6.8 percent.

• MMA Praxis Core Stock (MMPAX) is designed for members of the Mennonite Church. It avoids companies that profit primarily from weapons production or military contracts and seeks companies with good environmental, human rights and employee health, safety and compensation records. The fund generally trails the S&P 500, but that gap narrows over the long-term.

Green funds

Performance of these funds can vary widely because they range from having a broad eco-friendly outlook to a more targeted focus on alternative energy producers — such as wind and solar energy.

• Gabelli SRI Green A (SRIAX), for example, avoids defense and weapons contractors and companies that make more than 5 percent of their revenue from tobacco, alcohol or gambling. The mid-cap growth fund also screens out companies involved in any way with abortion. It has outperformed the S&P 500 since its inception in 2007.

• Calvert Global Alternative Energy (CGAEX), also created in 2007, on the other hand, has underperformed, falling 18.3 percent in the past year and an annualized 19.7 percent over three years. It invests in small-cap companies in the United States and other countries focused on renewable energy including solar, wind, biofuels, hydrogen and others.

Secular funds

This group lumps together environmental, social and governance funds, referred to as ESG in the industry.

• Parnassus Equity Income (PRBLX) looks for fair treatment of workers, environmental protection policies, a record of civic commitment and ethical business practices. Fund policies exclude alcohol and tobacco makers and companies involved with gambling. The fund has beaten the S&P 500 consistently, and its one-year total return of 13.6 percent is just slightly behind the S&P.

• Domini Social Equity (DSEFX) advocates for human rights, community development, renewable energy, pollution control and climate change policies. The fund, started in 1991, slightly trails the S&P 500 over five-year and 10-year periods. But its return of 14.5 percent over the past 12 months beats the S&P.