A Mutual Fund That's Kind to Animals

This year, Lipper reports that social-criteria funds gained 7.67% year to date, vs. 7.28% for the S&P 500.

Loest is taking it one step further than other socially responsible funds, which screen out undesirable aspects of society, such as alcohol, tobacco, gambling and big polluters.

"I talk to People for the Ethical Treatment of Animals [PETA]," says Loest. "They have really savvy liaison people with graduate degrees who work with pharmaceutical companies. They know things most stock analysts don't know, so that helped me decide to buy Johnson & Johnson(JNJ Quote). They're aggressively working with the Food and Drug Administration to remove animal experiments, so that makes them good in my book."

While Johnson & Johnson hasn't completely abolished testing on animals, Loest says the New Brunswick, N.J., pharmaceutical manufacturer is supporting new technology to make animal experimentation obsolete.

"I don't know what the reason is," he says, "but I suspect that the animal models are proving to be extremely poor subjects for extrapolating results to humans. So JNJ is using living human tissue to test toxicity."

The fund also holds Quest Diagnostics (DGX Quote), the largest lab-testing company in North America. Loest likes it because the Lyndhurst, N.J., company sold a business unit that had relied on animal testing.

The animal-rights focus isn't the only thing that sets this fund apart. Unlike many of his peers, Loest doesn't shy away from investing in arms dealers. "We all have the right to defend our homes," he says. "I can't make a clear case that making guns is bad."