This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Social Funds' Ethics Lead to Outperformance

Amana Growth (AMAGX) has been outpacing almost all its competitors lately. The fund returned 13.1% annually during the five years ending in September, more than 8 percentage points ahead of the S&P 500, according to Morningstar.

Portfolio manager Nick Kaiser accomplished that feat by avoiding financial stocks, which have been among the biggest losers this year. Does Kaiser deserve praise for brilliant foresight? Not necessarily. Designed to serve Muslims, Amana never buys financial stocks because Islamic law forbids the lending of money bearing interest.

Amana's showing underlines the success of socially responsible funds, which invest according to a variety of ethical guidelines. Some social portfolios steer clear of gambling stocks, others invest only in so-called green companies. During the past decade, domestic equity funds that invest according to social criteria have returned 4.7% annually, more than a percentage point better than the S&P 500. In the downturn of the past year, social funds lost 2 percentage points less than the benchmark.

The success of the funds should come as a surprise to academics who have long sneered at social funds, claiming the do-gooders are bound to underperform. They argue that social funds violate a cardinal rule of investing: It pays to diversify. Portfolios with broad diversification tend to outdo narrow collections of stocks. By this thinking, social funds should suffer from a handicap because they screen out some stocks.

But recent research shows that social investing can produce competitive returns. Good managers can excel, even if they must avoid dozens of stocks. "There is no evidence that fund returns are penalized when managers use social screens," says David Kathman, a mutual fund analyst at Morningstar.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
AAPL $123.25 0.00%
FB $83.30 0.00%
GOOG $548.34 0.00%
TSLA $185.00 0.00%
YHOO $45.10 0.00%


DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs