Good, but Better

By Daren Fonda

In the stock market, as in life, no good deed goes unpunished. Take the case of socially responsible investing (SRI). There are 79 stock funds that practice the style, which typically involves screening companies for stellar environmental and labor practices while shirking sin sectors like tobacco, booze and gambling. Sounds good, right? Yet SRI funds are often mediocre performers, partly because those sin stocks do rack up profits. Through September, the do-good funds averaged a 6.26% return, trailing the average stock fund by 0.6%, according to the research firm Morningstar. "Over time, SRI funds perform about the same as non-SRI ones," says Lloyd Kurtz, a senior portfolio manager at Nelson Capital Management and an expert in the field.

This isn't to say that ethics-driven investing has to crimp your bottom line. Consider Winslow Green Growth, a small-cap fund that, as its name implies, specializes in globally eco-friendly companies. Winslow has returned an average 16.39% over the past five years, according to Morningstar, beating both the average SRI fund and market benchmarks like the Russell 2000 growth index and the S&P 500. Winslow president Jack Robinson is also earning a reputation as a savvy stock picker, green or otherwise. In its annual survey of equity funds, Barron's/Value Line ranked him the top manager in the aggressive-growth category and the ninth best overall this year--quite a feat for an investor who won't go near certain sectors of the market, like oil and gas, even if they are sizzling.

A native New Englander with a love of the outdoors (he's a past president of the National Gardening Association), Robinson eschews the index-like mentality of many green funds and opts for small, fast-growing companies that are "green or clean." One such holding is Fuel Tech, which supplies pollution control and cleaning equipment to those nasty coal-fired power plants. Robinson also maintains stakes in the healthy-living sector, owning companies like Whole Foods Market and even the controversial HerbaLife, a maker of nutrition and weight-loss products. He's not averse to financial, biotech or telecom stocks either, stretching the notion of eco-friendly. Last year he made a killing off a telecom stock, Redback. "They're helping networks to move data faster, reducing the use of paper," he says. By that measure, though, almost any Internet firm would pass muster.

A major holding today is Zoltek, a maker of carbon fiber. What's green about that? Carbon fiber is a component of wind-turbine blades, and Zoltek's orders have soared as wind energy expands worldwide. Automakers are also evaluating carbon fiber as a substitute for some metals to improve fuel economy, and next-generation hybrids and fuel- cell vehicles should contain more of the material. Except for the Japanese, "all the auto companies are using or testing carbon fiber with Zoltek," Robinson says. The stock is up more than 185% this year.

Being narrowly focused, Winslow doesn't make small mistakes. Robinson and co-manager Matt Patsky hold fewer than 50 stocks, the annual turnover exceeds 100%, and the fund can be a roller coaster. Winslow slumped 9.2% in the second quarter, trailing the overall market. Concentrating on just a few dozen stocks has its merits: Robinson gets to know the management teams personally and follows their actions closely. "There isn't a company in our portfolio that we can't call and talk to the CEO," he says. But jump in at the wrong juncture, and you could be in for a downward ride. Then again, no one ever said being green would be easy.