Moral Money

In the 1978 movie Heaven Can Wait, Warren Beatty played an angelic corporate kingpin who proposes that his firm, Exo-Grey, shut down a profitable refinery because it might pollute the local environment. This was not just common sense, the Beatty character told his astonished board of directors, but good business as well, for the firm would profit from a dazzling image of social responsibility. While not all real-life businessmen would agree with that kind of thinking, it has spawned success for a small but rapidly growing group of socially conscious investment funds. About half a dozen of these mutual funds % are winning customers by promising to put money into the stocks or other securities of only those companies that meet stringent standards on issues ranging from pollution control to foreign investments. Many of the funds are now especially hot because they severely restrict investment in companies that have ties with South Africa.

The Pax World Fund of Portsmouth, N.H., avoids companies that make weapons, nuclear power equipment, liquor or tobacco products, or that have poor environmental or equal-opportunity records. Pax World invests in companies that do business in South Africa only if they are providers of food or medical supplies. Other similar social-investment firms include New Alternatives in Great Neck, N.Y., and the Bethesda, Md.-based Calvert Group, which offers both stock-and-bond and money-market funds. New York City's Dreyfus, one of the largest and most diversified of the general mutual-fund companies, operates a social-investment fund called Third Century, in addition to other standard portfolios.

Assets of the six largest social-investment funds have grown from $102 million in 1982 to $450 million this year, while the ranks of their investors have swelled from 22,000 to 66,000. The assets of the Pax World Fund, for example, climbed during that period from $7 million to $50.2 million, and the Calvert funds grew from $2.5 million to $146 million.

While investment decisions colored by considerations other than financial merit may seem chancy, the socially oriented funds are so far performing about as well as the rest of the market. According to Lipper Analytical Securities, which tracks mutual funds, the total return on Calvert's Social Investment Managed Growth Portfolio for the year ended Sept. 30 was 28.6%, a bit more than the average 27.4% for standard growth-and-income funds. Says John Guffey, executive vice president of the fund: "Our record has shown that we can do at least as well as broad-based averages."

That performance may not hold up in the long run, but the bottom line is clearly secondary for social-fund investors. "These funds serve excellent purposes for religious organizations, foundations and universities," says Jamie Goodrich-Ziegler, an associate editor of the Mutual Fund Letter in Chicago. "I wouldn't say go into them for a good investment, but go into them if you believe." More and more investors who worry about the social implications of their financial involvements seem to agree.