Third Quarter Report Cards

It was an ugly third quarter for investors, whether you applied social or environmental screens to your stock and mutual fund selections or not. According to Morningstar Inc. stock mutual funds fell 11 percent from July through September, trailing the Standard & Poor’s 500 index, which fell 8.4 percent.

Fortunately most investors who combine some variety of social, environmental or moral principles to their fundamental analysis of stocks also think long-term. But that doesn't mean they don't keep score. Among the winners and losers in the last quarter was the Ave Maria Rising Dividend Fund, a faith-based fund that was the leading equity income fund for the quarter. Ave Maria Rising Dividend was up 1.8 percent, compared to a 7.2 percent average decline for all funds in the category. On a year-to-year basis Ave Maria Rising Dividend is down 10.9 percent, compared to the average decline of 20.2 percent for funds in this category.

The fund invests in companies that have a long history of increasing their dividends, low debt and strong cash flow, according to fund manager George Schwartz. It’s also a “morally responsible” fund that has a Catholic advisory board that determines activities that should be screened out. Though Morningstar includes it in an “equity income” category, Schwartz points out that it’s not a high-yield fund.

“This is a fund that invests in extremely high quality companies that have long histories of increasing their dividends,” he says. “We aren’t buying utilities and other companies that don’t grow but pay dividends. It’s a capital appreciation fund. We buy stocks that we hope will go up a lot.”

Parnassus Equity Income Fund was also among the leaders in the equity income category, down 0.8 percent for the quarter. Fund manager Todd Ahlsten invests in interest- and dividend-paying large companies and screens for alcohol and tobacco, gambling, weapons and nuclear power. Year-to-year the fund is down 2.8 percent.

On the flip side the Azzad Ethical Mid Cap Fund, which applies screens on alcohol, tobacco, meat products and services, gambling, pornography and weapons of mass destruction ranked among the top five worst funds in the large cap core category. Azzad Ethical Mid Cap was off 19 percent for the quarter, compared to an average decline of 9.1 percent for funds in the category. Year-to-year it is down 24.9 percent, compared to an average decline of 21.3 percent.

The Winslow Green Growth Fund finished the quarter among the five worst funds in the small cap growth category. The fund was down 22 percent, compared to an average drop of 10.3 percent for funds in the category. Year-to-date it is down 35.9 percent, while the average decline for all funds in the group is 23.6 percent.

In a message posted on the Winslow Green Mutual Funds website, the managers of the Green Growth Fund and the Winslow Green Solutions Fund, Jackson Robinson and Matthew Patsky, said they had no direct exposure to the battered financial services sector. However, they’ve experienced “greater than expected indirect impacts” on their portfolios due to the spreading credit crisis. Stock prices have fallen for several green solutions market segments due to the recent slide in oil and commodity prices. The slowing of economic growth across the economy has also been a drag on Winslow’s growth-driven investment strategies.

“As the financial markets stabilize, we believe that the green economy offers one of the most promising paths to economic recovery, and therefore continues to appear very attractive to us as a long-term investment opportunity,” write Robinson and Patsky. With that in mind, we remain firmly and confidently on course.”