"Corporation: An ingenious device for obtaining profit without individual responsibility." -- Ambrose Bierce

Dear Shrink Rap: Recently I've read a lot of good things about "socially responsible" investing. What's your thinking on these funds? Are they worth considering?

Shrink Rap:

Socially responsible funds select their companies by using social and environmental screening. Some also are attracted to companies that are strong in the area of shareholder advocacy and community investing.

These funds won't invest in companies that produce goods that could be harmful to society or the environment, such as manufacturers of tobacco, alcohol, firearms, or firms that provide services to the gambling industry. In addition, many socially responsible funds avoid major defense contractors and companies that own or operate nuclear power plants.

Fund managers and their investors believe that by carefully screening the companies they invest in, they're helping to set standards for corporate accountability and encouraging companies to incorporate social and environmental factors into their decision-making.

They pay attention to such things as corporate citizenship, diversity in employment, and other employee relations issues, and make sure the companies they choose to invest in have positive records in these areas.

On the surface, the values fostered by socially responsible investing seem eminently sensible. But some of the sectors and companies included and rejected by these funds are certainly open to debate. The demarcations for judging right and wrong aren't always as easy to draw as fund managers might have us believe.

For example, especially at a time when the country is at war with terrorism, does it make sense to summarily dismiss the inclusion of defense contractors of any kind? Is it socially irresponsible to invest in a company that makes weapons that may assist in achieving the national objectives of insuring freedom and safety?

Or, should we shun a giant like


because it might do some exploitative things in certain places in the world? Should we refuse to invest in a company like


because it's involved in offshore oil drilling and therefore may harm the ocean?

The Good Old Days of Purple Haze

Answers to questions like these aren't as black and white for me today as they were back in my socially responsible student protest days at Berkeley. Then, I tacitly approved of others heaving rocks at the Bank of America on Telegraph Avenue. I felt a righteous clarity when

arrested for protesting the administration's fencing in of the

People's Park, a piece of land owned by the university but taken over and turned into a park by students and street people.

Back in 1969, the "military-industrial complex" was the enemy and anything affiliated with it deserved protest. Today, it's clear there's a lot wrong with what I've called the

market complex. But should the breakdown in investor confidence in brokerage ethics and practices mean we refuse to invest in this sector?

Telling the good guys from the bad guys isn't as simple as it used to be. Being 20 years old and a conscientious objector to the Vietnam War made it easy to believe the ROTC building deserved to be assaulted and that any multinational corporation supporting the war effort was wrong.

Today, it's easy for me to refuse to invest in

Philip Morris

but not so easy to know whether money invested in

General Dynamics






Lockheed Martin

is doing more harm than good. The complex ethical world is never quite so clear as an adult as it is when you're young.

The Envelope, Please ...

I did a little research on the Fidelity Investments Web site on the performance of some of the socially responsible funds. What I found isn't a pretty picture, so if there are any children in the room, you may want to tell them to look away.

Let's start with the

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Domini Social Equity Fund, the largest and oldest (since 1991) of this type. This fund invests in 400 large-cap companies that have passed their social and environmental screens. It's down 27.4% year to date, off 19.8% for the last year and down 14.1% for the last three years. But hey, the

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Domini Social Bond Fund is up 6.43% year to date.



TIAA-CREF Social Choice Equity Fund is down 27% year to date and off almost 19.4% over the last year. This fund attempts to track the performance of the

S&P 500

(down 20.47%) which it did. The


Security Social Awareness Fund is down 24% year to date and negative 15% over three years.

How about the


Vanguard Calvert Social Index, a large-cap fund negative 29.5% year to date? Or, may I suggest the

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Calvert Social Index Fund, load-adjusted, down 32% year to date and down 28% since its inception more than two years ago?

Perhaps you'd like to jump aboard the

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Delaware Social Awareness Fund, down 30.8% year to date and down 5.7% over the last five years?

Although the philosophy of socially responsible investing seems laudable, and the screening process the epitome of political correctness, these funds are clearly no better for your financial health than any other equity funds have been over the last two-plus years. In some cases, they're worse.

Perhaps the more relevant question is whether it's been personally, socially and fiscally responsible to allow your money to sit in


kind of equity fund.

Steven J. Hendlin, Ph.D. is a clinical psychologist in Irvine, Calif. He has been in private practice for the last 26 years, investing for the last 20 years, and actively trading online as a position trader and long-term investor since 1996. At the time of publication, he was long Goldman Sachs and Schlumberger, although positions can change at any time. He is the author of

The Disciplined Online Investor and maintains a site at www.hendlin.net. He is pleased to receive your comments and questions for publication in his public forum columns at

steven.hendlin@thestreet.com, but please remember that he is unable to provide personal counseling or psychotherapy through the mail.

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