NEW YORK ( TheStreet) -- Investors have been pouring money into socially responsible mutual funds in recent years, even though the makeup of these "do-gooder" investments has become increasingly complicated and even contradictory.
Investment in socially responsible mutual funds, exchanged-traded funds and similar vehicles soared almost 80% to over $1 trillion in 2012 from $569 billion in 2010, according to the US SIF foundation. During the same two years, the number of social funds rose almost 50% to 740 from 493.
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Certainly, there is something to be said for the appeal of doing well by doing good. But there is also room to wonder if the idea isn’t being stretched a little thin. Indeed, social funds have undergone a branding transformation.
Marketers now more commonly call them environmental, social and governmental funds and their goals have been flipped. Instead, of avoiding certain investments -- the classic “sin” stocks of tobacco, alcohol, gambling, weapons and sex-ertainment companies -- funds now target companies that have solid human rights, environmental and product safety records and that recognize shareholder rights, among other criteria. Managers often define their investments on their own terms.
“It gets complicated,” says David Kathman, a senior analyst at Morningstar. “There’s more variety. They’re no standards either and saying what’s positive is more difficult than saying what’s negative, so it’s harder for investors to know what they’re getting.”
In the bargain, “it cost the fund manager more for research into companies and that means higher fees for investors,” Kathman said.
Shares of weapon manufacturers, oil companies and other stocks that are an anathema to social investing have been included social funds. For example, companies such as BP (BP) and Nike (NKE) , whose images have been tarnished by oil spills and sweatshop labor, have been in and out of social funds.