Monday, January 12, 2004

Investors have discovered they can make a lot of green in so-called green stocks. The Sierra Club Stock Fund, introduced in January 2003, produced a 32.02 percent return for investors last year. The fund’s benchmark, the Standard & Poor’s 500 Index, rose 26.38 percent in 2003.

“For them to be up that much is very good. … You can invest in your values and not compromise your returns,” said Thomas Van Dyck, a Piper Jaffray & Co. analyst who tracks philanthropic and social investing.

The Sierra Club, an environmental activist group based in San Francisco, has put its name on two mutual funds: the Sierra Club Stock Fund and the Sierra Club Balanced Fund. The organization’s officials said they entered the investment world at the request of members, who wanted to put their money in companies that have strong environmental reputations.

The Sierra Club approves all investments in the funds with guidelines that are so strict that the organization’s executive director, Carl Pope, estimates that only one-third of the companies in the S&P 500 Index qualify.

Mr. Pope and other Sierra Club officials will not disclose the specific guidelines but, in general, they say the funds exclude companies that have poor environmental track records, such as businesses with pollution records.

The Sierra Club also takes some non-environmental criteria into consideration, such as whether a company has a good labor record. For example, businesses that have International Labor Organization violations do not qualify.

The Sierra Club Stock Fund, which invests about 80 percent of its assets in stock and the rest in cash, is actually 5 years old. In January 2003, the environmental group partnered with Forward Management and “rebranded” a Forward mutual fund that began in October 1998 and began subjecting its holdings to the strict screening guidelines.

The Sierra Club chose to rebrand an existing fund because many institutional investors won’t put money into a mutual fund unless it has a record of three years or more, said Garvin Jabusch, the funds’ research director.

Since its inception, the stock fund has averaged an annual rate of return of 3.66 percent, compared with a 1.71 percent rate for the S&P 500 Index.

The Sierra Club Balanced Fund, introduced in January 2003, was started from scratch. It invests about 60 percent of its assets in stocks and 40 percent in fixed-income securities such as bonds.

In its first year it produced an 18.65 percent rate of return, slightly less than the 18.84 percent rate produced by the balanced fund’s dual benchmarks, the S&P 500 Index and the Lehman Brothers Aggregate Bond Index.

The better-performing Sierra Club Stock Fund that has impressed analysts such as Mr. Van Dyck.

Almost 4 percent of the stock fund is invested in electronics retailer Best Buy Co. Inc., its top holding. Its 24 other top holdings include cosmetics giant Estee Lauder Cos. Inc. (2.44 percent), Starwood Hotels & Resorts Worldwide Inc. (1.9 percent), banker Wells Fargo & Co. (1.7 percent), television broadcaster Univision Communications Inc. (1.64 percent) and the Starbucks Corp. coffeehouse chain (1.56 percent).

The Sierra Club does have concerns about some of its holdings, such as Best Buy, which sells many plastic products. “We recognize that they are not perfect, but no company is,” Mr. Jabusch said.

The Sierra Club funds are part of the “socially responsible” investing movement that began in the 1970s but picked up steam in the past decade, particularly among investors who believe good social performance translates into better performance on Wall Street.

Assets in socially screened portfolios reached $2.14 trillion in 2003, according to the Social Investment Forum, an organization that tracks the amount of money put into “responsible” companies.

Socially screened investments have risen 7 percent in the past two years, compared with a 4 percent decline in “unscreened” investments, the organization reported.

“A lot of evidence suggests socially responsible funds perform just as well as the broader universe,” said Todd Larsen, the Social Investment Forum’s spokesman.

Some smaller, environmentally sensitive mutual funds exist, such as the New Alternatives Fund, which invests in renewable energy, recycling and natural food companies. It produced an average rate of return of 23.51 percent in 2003.

Analysts said they were not surprised by the Sierra Club Stock Fund’s 32.02 percent return since Wall Street had a good year. The fund’s future success is not guaranteed because mutual funds tend to fluctuate, the analysts said.

“It will surprise me if it can maintain that level of performance over time,” said R. Kevin O’Keefe, chief investment officer for First Affirmative Financial Network, an investment advisory firm in Colorado Springs.

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