New Funds for Socially Responsible Investors

Investing with your conscience is more popular than ever, and more and more people are sending their checks to socially responsible funds. According to the Social Investment Forum, nearly $1 of every $8 under professional management in the United States is in a socially responsible portfolio.

This trend has led firms that offer socially responsible investing (SRI) funds to expand their lineups, as well as to prompt other companies to launch SRI funds. There are still gaps in what is offered, for sure, but once underrepresented corners of the SRI universe are now covered. It's finally getting easier to build a well-diversified, low-cost portfolio of SRI funds.

Two Low-Cost Giants Enter the Social Index Ring
Domini Social Equity (DSEFX) and Citizens Index  earn 4-star ratings, but these offerings have a catch: They're both pricey. Citizens' 1.58% expense ratio is higher than most large-cap index funds'. And at 0.98%, Domini's expenses are lower, but they are still above average.

Now, two kings of low-cost investing--Vanguard and TIAA-CREF--have thrown their crowns into the socially responsible ring, rolling out large-cap funds that charge considerably less than Domini and Citizens.

Expected to open in early May, the Vanguard Calvert Social Index Fund will charge 0.25% for retail shares. Its benchmark will avoid alcohol, tobacco, gambling, and nuclear-power businesses, and it will screen companies for qualities like environmentally sound records and workplace policies.

TIAA-CREF Social Choice Equity, which opened April 3, charges 0.27%. Its index screens are similar to those of Vanguard's, though the TIAA-CREF fund also has stringent standards for firms operating in Northern Ireland.

New International Offerings
Only four international funds are listed as socially responsible in Morningstar's database. The array of options should broaden, though, as two socially screened international funds get ready to launch.

The Walden/BBT International Social Index Fund (WISIX) is the first socially screened fund to track the MSCI EAFE index. The fund will try to mimic the performance of that index, but it will screen out alcohol, tobacco, gambling, and firearm businesses, nuclear-power producers, and companies with poor human-rights records. In addition, the fund's management plans to be an activist shareholder, encouraging companies to improve their environmental and employment practices.

London-based asset manager Friends Ivory & Sime has rolled out an international offering, too. The European Awareness Fund is limited to Europe, where it concentrates on growth-oriented companies. And like many socially screened options, it will avoid investing in organizations promoting tobacco, alcohol, or gambling, as well as firms with poor environmental track records.

Getting Social with Small Caps
A new index offering from Citizens provides social investors with an interesting option. The Citizens Small Cap Index Fund, which launched on December 28 invests in a market-cap-weighted index of 300 companies that pass Citizens' social and environmental screens. The fund will buy stocks with market caps between $500 million and $3.5 billion.

This could be a great way for social investors to round out their portfolios. Citizens has shown that it can run strong-performing index offerings. And Sophia Collier, who runs Citizens Index, is also managing Small Cap Index. But this fund shares its sibling's most unappealing quality: It's expensive. Citizens is charging an expense ratio of 1.55% for Small Cap Index, which is egregiously high when it is compared with the average small-cap index fund's expense ratio of 0.65%.

A Niche Offering for Animal Lovers
A new option is available now for investors who want to focus on companies with strong animal-rights records. Smith Barney and the Humane Society of the United States have collaborated in launching the Humane Equity Fund, which avoids pharmaceutical companies, some cosmetics companies, and firms that manufacture products that can hurt animals, such as hunting and trapping equipment. The fund is managed by Chad Graves, who has built a decent record as manager of Smith Barney Balanced .

It's a Start, but There's Room for More
These new funds won't be the answer for all of social investors' needs. The Vanguard and TIAA-CREF offerings are bringing low-cost competition to the large-cap arena, but the same can't be said for other areas like small-cap and international investing. There are still relatively few options in those groups, and they're often expensive.

Another hole is in the value column of the Morningstar style box. But as more and more of investors' dollars flow into socially screened funds, it's likely that fund companies will launch a larger, more diverse group of social offerings to meet the demand. And as firms known for low-cost, high-quality products like Vanguard and TIAA-CREF roll out social offerings, the choices available to socially conscious investors may well get better--and cheaper.