DO-GOODERS DOING GOOD IN TECH STOCKS: SOCIALLY AWARE FUNDS FLY HIGH WITH SECTOR’S ROCKETS

Citizens Index didn’t get to be the top-performing socially conscious fund by loading up on Ben & Jerry’s.

Big tech names like Microsoft Corp., Intel Corp., Cisco Systems and Lucent Technologies Inc. pushed the $502 million fund’s weighting in the sector to almost 37% in January. That’s about 15 percentage points more than the 22% tech weighting of the Standard & Poor’s 500 stock index.

Like Citizens, socially aware funds have been riding the coattails of tech stocks to newfound respectability, rather than concentrating on outfits like Ben & Jerry’s, the ice cream empire known for donating a portion of profits to left-leaning charities.

Still, as Paul A. Hilton, manager of the $1.2 billion Dreyfus Third Century Fund, notes, “Tech stocks are clean from an environmental perspective and tend to have better employee benefits programs and reach out to communities.”

The average tech weighting for socially conscious domestic stock funds was 20.2% on Jan. 31., vs. 17.3% for the average domestic equity fund, according to Chicago fund-tracker Morningstar Inc.

Managers of socially conscious funds say their improved performance demonstrates investors don’t have to sacrifice returns when letting conscience be their guide. But hefty bets on technology make the funds vulnerable to any drop in the sector.

Such funds — most of them growth portfolios — have flocked to tech stocks not only for their performance, but because such companies tend to survive screens for environmental and other concerns.

Tech firms “are young, smart and liberal,” says William Dougherty, president of retirement plan consulting firm Kanon Bloch Carre of Boston. “You don’t have to spend a lot of time analyzing Intel, but if you are going to buy XYZ telecommunications, you are going to have to do a lot of research.”

Domestic stock funds in the socially aware category gained 8.75%, 18.22% and 15.02% for the one-, three- and five-year periods ended Feb. 28, says Morningstar.

Meantime, general domestic equity funds returned 4.32%, 15.46% and 15.19%, while the S&P 500 gained 19.74%, 26.80% and 24.13%.

Beefed-up performance has helped push the assets of socially aware funds up more than 126% to $8.3 billion since 1995, but they still represent a minuscule 0.22% share of the fund industry.

“People are obviously noticing funds like Citizens and Domini (Social Equity), but they shouldn’t expect the kinds of numbers these funds have been posting,” says Morningstar analyst Laura Lallos.

Both funds beat the S&P 500 for the one- and three-year periods ended Feb. 28: Citizens gained 30.13% and 32.20%, respectively, while Domini returned 23.14% and 28.81% and the S&P 500 jumped 19.74% and 26.80%.

“Our social and environmental screening results in overweighting in the information-based industries that are really driving the economy and underweighting in the old materials-based industries of the past,” says Joseph F. Keefe, executive vice president of Citizens Advisers Inc. in Portsmouth, N.H., which saw its assets under management jump 45% to $830 million last year.

Citizens tracks an index comprising 40% of the S&P 500 plus 100 additional stocks, mostly large-cap. Coca-Cola Co., MCI Worldcom Inc., SBC Communications, BellSouth Corp., Dell Computer Corp. and Bell Atlantic Corp. round out its top 10.

The $863 million Domini Social Equity Fund had 21.8% of its assets in tech stocks at the end of January, including Microsoft, Intel, Cisco and Lucent. Other big positions in the $863 million fund, run by New York-based Domini Social Investments LLC, are Merck & Co., Coca-Cola and Procter & Gamble Co.

“The strongest (funds) are large-cap, growth-oriented, leaning toward tech stocks and heavily weighted in the bellwethers,” says Morningstar’s Ms. Lallos.

Managers of socially responsible funds say they are taking on no more risk than managers of mainstream funds gobbling up tech stocks. Plus, they say they are investing in big names with plenty of room to run, not start-up Internet companies without a dime of earnings.

“Any investment adviser putting their client in large-cap funds today, whether they are socially responsible funds or not, is going to run into the same issue,” says Mr. Keefe.

“We don’t remove a company from our (Domini Social Index) because of performance results,” says David Wieder, managing principal of Domini Social Investments.

Mr. Wieder says his index, which tracks 250 of the S&P 500 stocks, “is meant to represent the domestic equity market that is available to socially responsible investors.”

That attitude has already burned some funds, including Mr. Hilton’s Dreyfus Third Century Fund. It took a slight hit last year because of its overweighting in financial stocks, but that hasn’t lowered Mr. Hilton’s faith in technology. He had a 28.1% tech weighting in January — and has outperformed the S&P 500 for one-, three- and five-year periods, gaining 23.96%, 25.94% and 21.91%.

Virginia M.K. Stanley, an adviser who says her clients dragged her “kicking and screaming” into socially conscious investing, argues that the biggest problem with such funds is overlapping holdings, which makes it hard to build a diversified portfolio.

“I try to get a broad base either with stocks or convince (clients) to go with some non-socially responsible funds that maybe don’t carry a lot of Philip Morris (Cos.),” says the Albuquerque, N.M.-based planner and certified public accountant.

The funds may have one less stock in common if the Department of Justice wins its antitrust suit against alleged monopolist Microsoft. Until then, managers of socially aware funds are in no hurry to dump the darling.

“If there is a finding that Microsoft violated the law,” says Mr. Keefe, “that will enter into our screening process.”