'Social' Funds Finally Reward Investors

NEW YORK (TheStreet) -- Some socially conscious funds, which invest in companies that managers consider to be ethical, have outperformed their benchmarks this year, helped by winning bets on companies with solid environmental records.

Winslow Green Growth(WGGFX Quote) has returned 26%, outpacing the S&P 500 Index by 14 percentage points, according to Morningstar. Other funds that have beaten benchmarks by wide margins include Vanguard FTSE Social Index(VFTSX Quote) and Calvert Social Investment Equity(CSIEX Quote).

Part of the success can be traced to the investment criteria followed by the funds. Companies with notable environmental records include computer-hardware makers, whose shares have rallied.

Though the environmental criteria helped recently, the impact of social screens varies from year to year. During the downturn of 2008, technology shares cratered, and many social funds lagged. For the year, Vanguard FTSE Social Index lost 42%, trailing the S&P 500 by 5.4 percentage points.

Socially responsible funds aim to invest in companies that are good corporate citizens. To achieve the goal, portfolio managers follow different approaches. While some funds are designed for environmentalists, other portfolios aim to serve investors from religious backgrounds. Because they use different criteria, the funds don't move in lockstep. Some portfolios have a bias for growth stocks, while others favor value.

Faith-based funds -- including portfolios for Muslims, Protestants and Catholics -- often avoid media companies because their films are considered unwholesome. Some Christian funds refuse to own stocks of companies that give benefits to same-sex partners or make donations to Planned Parenthood and other groups that support abortion. As a result, some of the faith-based funds underweight health and technology companies, which have liberal policies on homosexuality and abortion.