Q Given the emphasis on green and alternative energy, can you recommend exchange traded funds (ETFs) or mutual funds that invest in such companies?
DEE, PLYMOUTH
A President Obama, in his first address to a joint session of Congress, made it eloquently clear that alternative energy is among his administration's top priorities. "But to truly transform our economy, protect our security and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy," he said.
The alternative energy sector is intriguing. That said, the sector hasn't done well lately mainly because of the steep drop in energy prices. It's a volatile part of the market since green mutual funds and green ETFs tend to own many small companies. Fees are high, too. This is an area I would recommend dipping a financial toe into, and learning from the experience for future investments. I'm not comfortable recommending any particular alternative energy fund, but two good sources for research are Morningstar (www.morningstar.com) and the Social Investment Forum (www.socialinvest.org).
One other thought: A number of socially responsible index funds have been created, and scholars have found that there is no significant difference between their returns and the return on the benchmark Standard & Poor's 500 index. Meir Statman, professor of finance at Santa Clara University and a leading researcher in the field, looked into the performance of four major socially responsible indexes and the Standard & Poor's 500 from 1990 to 2004, and he found that their returns were comparable.
Taking a more recent look, the Vanguard FTSE Social Index Fund had a five-year return of 9.73 percent and a 14.66 percent return year-to-date. That compares with a five-year return of 5.69 percent on the benchmark Vanguard S&P 500 equity index fund and a year-to-date return of 13.98 percent.
However, not all socially responsible equity index funds are the same. Some charge high fees, and some even charge to open up an account. It pays to shop around.
Like their actively managed mutual fund peers, actively managed socially responsible funds consistently lag behind the passively managed socially responsible index funds. If you're interested in socially responsible investing, the index funds are worth exploring.
