Conscience? Who Cares?

I'm confused about socially responsible investing, and so are some of my money-management clients. Several have instructed me to avoid all tobacco and defense stocks. I understand shunning cancer-stick purveyors, but disdaining all defense contractors strikes me as pacifist lunacy in a post-9/11 world. I marched on Washington during the Vietnam War, but I kind of like the idea of having a Defense Department.

I initially thought this column would be a screed against SRI. [Kiplinger's prefers the term socially screened investments to avoid implying that other kinds of investments are socially irresponsible.] After all, it's apparent from a pure money-management perspective that you virtually guarantee less-than-optimal results when you arbitrarily eliminate enormously profitable sectors of the investment world, such as alcohol and gambling. Underscoring that point is the mediocre performance of so many SRI mutual funds.

Make money any way

So I was going to trumpet my complete lack of scruples as an investor. (As recently as a year ago, I owned Halliburton. Enough said.) And I was going to encourage you to abandon yours, as well. After all, I was fat and happy with my quasi-moral mantra: Make as much as you can in the market however you can -- c'mon Halliburton -- then use the proceeds for your favorite causes.

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It's easy to be snide about SRI. I've given money to the Sierra Club, but I wouldn't think of giving a nickel to the Sierra Club Stock fund, which has lagged Standard & Poor's 500-stock index in five of its eight full years in operation. Timothy Plan Large/Mid-Cap Growth fund, which favors "biblical" investing and avoids "sin" stocks like the plague, has lagged the S&P 500 by an average of six percentage points per year since its inception in late 2000. No ill-gotten gains there. And Citizens Core Growth fund -- which avoids companies involved in tobacco, alcohol, nuclear power and gambling, as well as those with poor records on workplace diversity -- has trailed the index by an average of three percentage points per year since its start in March 1995. If I were the portfolio manager, I'd pour myself a stiff one and head for the track.

One of the most famous SRI funds, Domini Social Equity, has lagged the market by a bit less than one percentage point per year since its 1991 inception. But some SRI funds do much better. Ave Maria Catholic Values Fund has beaten the S&P 500 by an average of five percentage points a year over the past five years. The fund, run by George Schwartz, shuns firms connected with abortion (some hospitals and insurers) and contraception, as well as those that contribute to Planned Parenthood.

So, philosophical and material values can merge. And this may be increasingly true. In the wake of An Inconvenient Truth and growing interest in alternative energy, so-called green funds may perform well for years. Imagine how solar-energy stocks would shine if it looked as if Al Gore had a shot at becoming president in 2008. For strictly mercenary reasons, it might be time to go green -- and I may do so.

Standing pat

But I plan to stick to my generally sordid ways, partly because I think the SRI view of corporations is grotesquely simplistic. I own shares of Apple and like its values -- but not when it comes to the backdating of stock options. I own Microsoft even though its co-founder is a monopolist who used disgusting tactics to stifle rivals. And many SRI funds own biotech giant Amgen, which is lobbying hard to persuade Congress to ban biotech generics, a move that would increase health-care costs. Amgen says the issue is safety. Perhaps, but I suspect that Amgen is every bit as greedy for profits as Altria and Lockheed Martin.

So if you take sides as an investor, that's fine. I'd really like to have scruples, too. I'm just not sure I can afford them.

Columnist Andrew Feinberg writes about the choices, challenges and frustrations facing individual investors.