Fund Screen: The top-performing socially screened bond funds

NEW YORK Fri Jun 7, 2013 11:16am EDT

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NEW YORK (Reuters) - Massachusetts became the first U.S. state to sell so-called green bonds, and fund investors should be prepared for more to come.

Tuesday's auction, which drew $130 million in orders for 20-year debt sold with interest rates between 3.20 percent and 3.85 percent, will exclusively fund clean water, energy conservation and similar projects.

While Thomson Reuters data shows environmental infrastructure among the uses of proceeds from about $1.7 billion in municipal bonds sold this year, this was the first time a state used the "green bond" moniker to target socially responsible investors.

It probably will not be the last. About $640 billion - double the figure from 2010 - is now invested using social screens, according to the Forum for Sustainable and Responsible Investment.

The majority of those funds go into stocks that pass screens for issues like the company's environmental impact, social policies and involvement in the weapons, alcohol or tobacco businesses. Bond funds, meanwhile, tend to invest in either the debt of those same companies or in government securities.

Younger investors and affluent investors are finding the category more attractive, experts say.

"The first 600 times I heard about impact investing, I thought 'tree huggers,'" Sallie Krawcheck, former head of Bank of America's global wealth and investment management division, said at Reuters Global Wealth Management Summit this week. "But the ability to use one's capital to support what one believes in without giving up performance is becoming increasingly appealing."

Fund investors can choose from 29 socially screened bond funds, according to Lipper. Here are the five top performers over the last year through May 31, as well as their five-year annualized performance.

(Reporting by David Randall; Editing by Linda Stern and Lisa Von Ahn)

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