The feel-good funds grow in popularity

Socially responsible funds, and the ideals behind them, are becoming more mainstream, but building a truly diversified portfolio with them remains a challenge.

The realm of socially responsible investment funds is a niche that is still growing — in fact, at a faster pace than the mutual-fund world as a whole, according to Morningstar.

But one of the things that can make it a confusing area for investors is the wide diversity of values SRI funds attempt to incorporate. And because the majority are fairly small in terms of assets, bargain hunters may not be thrilled with their fees.

Still, those who believe in the idea of looking beyond the balance sheet say screening for citizenship bears rewards.

"If a company has been thoughtful about the impact they have on the environment, chances are they've also been thoughtful about how they treat their employees," said Matthew Patsky, co-manager of the Winslow Green Growth Fund (WGGFX). "There's growing evidence, and broadening acknowledgment, that these kinds of nonfinancial issues are important to long-term performance."

Among large-cap domestic equity, a fair number of choices are available. One of the biggest SRI fund shops is the Calvert Group, which eliminates alcohol, tobacco, gambling and weapons companies, as well as firms with poor environmental and labor practices.

Among faith-based shops, one of the best-known is the Ave Maria Funds, which seek to incorporate Catholic values.

New Covenant Funds, affiliated with the Presbyterian Church, avoids alcohol, tobacco, gambling and certain elements of defense — specifically, companies dependent on military contracts and those that develop weapons that kill indiscriminately.

The idea is to avoid anything that can hurt noncombatants in a war, said George Rue, New Covenant's chief investment officer.

"We're not against a proper defense of our country," he said. "But we're trying to have some level of control. ... We want to be a voice out there saying we want those things reduced."