• Print
  • Default text size A
  • Larger text size A
  • Largest text size A

Links provided by Fidelity Brokerage Services

fidelity-fbs-iconThese links are provided by Fidelity Brokerage Services LLC ("FBS") for educational and informational purposes only. FBS is responsible for the information contained in the links. FICS and FBS are seperate but affiliated companies and FICS is not involved in the preparation or selection of these links, nor does it explicitly or implicitly endorse or approve information contained in the links.

Published by Fidelity Interactive Content Services

Content for this page, unless otherwise indicated with a Fidelity pyramid logo, is published or selected by Fidelity Interactive Content Services LLC ("FICS"), a Fidelity company with main offices in New York, New York. All Web pages that are published by FICS will contain this legend. FICS was established to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications and FICS-created content. Content selected and published by FICS drawn from affiliated Fidelity companies is labeled as such. FICS selected content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by any Fidelity entity or any third-party. Quotes are delayed unless otherwise noted. FICS is owned by FMR LLC and is an affiliate of Fidelity Brokerage Services LLC. Terms of use for Third-Party Content and Research.

5 socially responsible funds

A look at five top-performing funds in the category.

  • By Steve Garmhausen,
  • Fidelity Interactive Content Services
  • – 01/15/2014
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.

If you like the idea of investing according to your social or religious values, there are plenty of funds to choose from these days.

More than 300 "socially responsible investing" funds are on the market, with an estimated $3.7 trillion professionally managed according to SRI principles — up 22% since 2009, according to the Forum for Sustainable and Responsible Investment, a non-profit group in Washington.

While there's no single set of SRI standards, the funds generally look for companies that are good corporate citizens or pass a fund's religious or social values screens.

Some funds evaluate companies according to corporate governance standards, screening out those that fall below a certain threshold. Others might avoid handgun or tobacco makers. For others, almost all industries are permissible, as long as companies meet minimum standards for governance, labor and environmental practices.

Ideally, a fund will pick companies that not only pass its screens but are good investments — allowing investors to avoid a penalty for making their values at least as important as profits.

Some studies, in fact, suggest that's quite feasible. According to a 2012 report by Deutsche Bank, companies that rate highly for corporate and social governance tend to have superior "risk-adjusted" returns. SRI funds overall tend to perform similarly to conventional funds, with some beating and some trailing the market.

"There's this idea that socially responsible investing must limit your returns, but that's slowly changing," says Amy Domini, CEO of Domini Social Investments in New York, a leading SRI firm.

Granted, SRI funds use a wide range of screens, for better or worse. A fund may filter out entire sectors like energy and defense. Yet if those sectors outperform the market, the fund manager will have to generate larger gains elsewhere to keep pace. That can be challenging, and it could lead a fund to take more risk in an effort to boost returns.

Furthermore, socially responsible investing isn't the only way to put your beliefs into action. An investor could aim for exceptional performance with conventional funds and use the profits to support the causes of her choice.

5 fund picks to consider

To find compelling choices, we asked fund tracker Lipper to screen for top-performing funds over the past three years. In addition to strong returns, we looked for reasonable expenses and managers with a consistent, disciplined approach — indicating they wouldn't chase returns by taking excessive risk.

Keep in mind that some funds use strict SRI screens, potentially limiting their performance. As always, the following fund snapshots are not meant to be recommendations but rather a starting point for further research.

Amana Income Fund

  • Ticker symbol: AMANX

This fund looks for high-quality, dividend-paying stocks, aiming to preserve capital and generate income. Its SRI twist? It invests according to Islamic principles, avoiding companies involved in liquor, gambling, pornography and finance.

The fund's restriction on owning finance companies can be a double-edged sword. Avoiding those stocks helped the fund beat the market in 2007 and 2008. But with financial stocks soaring since then, the fund landed in the bottom 16% of all large-blend funds over the last five years, according to Morningstar.

Over the past decade, however, the fund ranked in the top 1%, partly because it has stuck with quality companies, according to co-manager Nicholas Kaiser, who has run the fund since 1990. Its Islamic principles keep out the most speculative stocks and highly leveraged companies, he says. That leaves the portfolio packed with low-debt, cash-rich companies such as Nike (NKE), Johnson & Johnson (JNJ) and Colgate-Palmolive (CL).

The downside: The fund's focus on dividend stocks makes it relatively defensive; it could underperform in strong bull markets and periods of rising interest rates.

Ariel Appreciation Fund

  • Ticker symbol: CAAPX

Based in Chicago, the managers of this fund don't invest in tobacco or handgun manufacturers. And they consider a company's environmental policies, avoiding firms with poor track records or potentially high environmental costs.

Aside from that, just about any cheap mid-cap stock is fair game — especially if it's heavily discounted. "Most of our opportunities arise because of basic emotions: fear and greed," says co-manager Timothy Fidler, who runs the fund with veteran investor John Rogers.

A prime example of a stock they like is Coach (COH). Once a high-flying company, the stock of the handbag maker has landed in the bargain bin thanks in part to stiff competition from Michael Kors (KORS). But strong management and promising new products should help Coach recover, Fidler says.

The downside: About one-third of the fund is concentrated in financial stocks, nearly three times the mid-cap fund average, according to Morningstar. That could hurt returns if financials underperform.

Ave Maria Rising Dividend

  • Ticker symbol: AVEDX

The fund hunts for large-cap stocks with rising dividends and a history of "shareholder-friendly" activities. But companies must also pass Catholic values screens and be "morally responsible," according to the fund's advisory board.

The upshot? The fund avoids companies with a role in contraception, abortion or stem-cell research and it excludes businesses that donate to Planned Parenthood. Those criteria make the $709 million fund somewhat controversial. Yet its returns have ranked in the top 16% over the past five years, according to Morningstar.

One example of its investing style: Ross Stores (ROST). The clothing store chain has consistently bought back shares and raised its dividend, and it's "a fantastically well-run company," says co-manager Richard Platte, Jr.

The downside: The fund is relatively defensive. It has generally captured less of the market's upside than rival funds, according to Morningstar, though it has outperformed during downturns.

Domini International Social Equity Fund

  • Ticker symbol: DOMIX

Focusing on foreign stocks, this fund avoids tobacco, alcohol and gambling stocks. It also excludes nuclear power companies and defense contractors, and only invests in companies that meet its standards for social and environmental responsibility.

The result is a broadly diversified fund of around 150 high-quality stocks, selected and managed by the fund's sub-adviser Wellington Management. Overall, its track record has been strong: The fund beat 85% of rivals over the past five years, according to Morningstar.

Granted, the fund's screens can seem a bit arbitrary. According to the firm, companies may not be excluded despite mixed social records and "substantial controversies" involving human rights, labor standards and other issues. If they have "praiseworthy initiatives" and are making progress toward "long-term benefits" they can make it in.

The downside: The fund's 1.6% expense ratio is above the Morningstar category average of 1.36%. Foreign stocks can decline due to currency fluctuations and other local-market factors.

Pax World Small Cap

  • Ticker symbol: PXSCX

As its name implies, the fund focuses on stocks with an average market value of $1 billion, an inherently risky area. Yet the fund takes a risk-averse approach. It sticks with 50 to 60 high-quality names with sustainable business models, according to manager Nathan Moser, who notes many of its holdings are financially strong enough to pay dividends.

The fund's SRI screens also reduce risk, he adds. Businesses with poor labor practices, weak corporate governance or lax environmental records get weeded out. The fund also avoids companies that deal in weapons or tobacco or are deemed to have unethical practices.

All told, the fund has racked up strong returns: Over the past five years it beat 85% of peers, according to Morningstar, and it's done so while taking less risk than peers.

The downside: Small-cap stocks are volatile and the fund could tumble in a broad downturn.

Steve Garmhausen is a freelance contributor to Fidelity Interactive Content Services, a provider of objective investing content on Fidelity.com. He does not own any of the securities mentioned in this article.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
© 2008-2014 Fidelity Interactive Content Services LLC. All rights reserved.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.
Content for this page, unless otherwise indicated with a Fidelity pyramid logo, is published or selected by Fidelity Interactive Content Services LLC ("FICS"), a Fidelity company with main offices in New York, New York. All Web pages that are published by FICS will contain this legend. FICS was established to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications and FICS-created content. Content selected and published by FICS drawn from affiliated Fidelity companies is labeled as such. FICS selected content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by any Fidelity entity or any third-party. Quotes are delayed unless otherwise noted. FICS is owned by FMR LLC and is an affiliate of Fidelity Brokerage Services LLC. Terms of use for Third-Party Content and Research.
fidelity-fbs-iconThese links are provided by Fidelity Brokerage Services LLC ("FBS") for educational and informational purposes only. FBS is responsible for the information contained in the links. FICS and FBS are seperate but affiliated companies and FICS is not involved in the preparation or selection of these links, nor does it explicitly or implicitly endorse or approve information contained in the links.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information.  Read it carefully.