Conservative investing: investments made for political reasons produce profits that are moderate to conservative.

Investments made for political reasons produce profits that are moderate to conservative.

EVER since the 1960s, there have been mutual funds catering to investors who want to put their money to work in socially responsible ways. As you'd expect, "socially responsible" is usually a synonym for "left-wing."

Consider, for example, Pax World, a fund that was started in 1971 and now sports half a billion dollars in assets, distributed among stocks and bonds that meet certain standards: "Management seeks companies that produce life-supportive goods and services. Companies engaged in manufacturing defense or weapons-related products or those engaged in the liquor, alcohol, tobacco, and gambling industries are excluded from the portfolio. The fund also avoids U.S. Treasuries, because this debt could be used to finance defense."

Most socially responsible funds follow similar guidelines. New Alternatives won't invest in "firms focusing on petroleum and atomic-based energy sources." The Parnassus fund insists on "enlightened and progressive management practices."

If such funds don't appeal to you (and I doubt they do), you now have another choice. A new social fund that can accurately be termed conservative has just completed its first full year. It was started by Arthur Ally as a retirement plan for pastors of independent churches.

He named the fund for St. Timothy, who elicited two brief epistles from St. Paul that seem to have investment relevance: "If any provide not for his own, and specially for those of his own house, he hath denied the faith, and is worse than an infidel" (I Timothy 5:8). And: "Lay hands suddenly on no man, neither be partaker of other men's sins; keep thyself pure" (I Timothy 5:22).

To help shareholders achieve both of these aims, Ally says, the Timothy Plan won't invest in "companies that are contributing to our society's moral decline." Specifically forbidden are the stocks of firms that "promote pornography" (broadly defined to include sexy, foul-mouthed, and violent movies and TV shows and the companies that advertise heavily on them), abortion (barred are drug makers, hospital chains, and insurers that facilitate the practice, as well as firms that contribute heavily to Planned Parenthood), and activities which, in Ally's words, "are offensive to basic Christian values." In this third category, the Timothy Plan places companies that are "aggressively promoting the homosexual agenda" by, for example, defining same-sex couples as families for purposes of health coverage. One such company, says Ally, is Walt Disney, which, he adds, "is on our list for a number of reasons, including its two film subsidiaries that turn out some raunchy stuff. I believe Walt is rolling over in his grave."

Ally uses three ministries to screen out offending stocks. American Family Association, headed by the Rev. Donald Wildmon, of Tupelo, Miss., identifies sponsors of nasty TV programs. Among them, says Ally, are Bristol-Myers Squibb and PepsiCo. Pro Vita Advisors of Dayton, Ohio, monitors abortion activities; on the basis of its findings, Ally won't invest in stocks like Columbia/HCA Healthcare Corp. and Cigna, the huge health insurer. Finally, Life Decisions International of Amherst, N.Y., fingers firms that support Planned Parenthood. That list, says Ally, includes such household names as American Express and Merrill Lynch.

Timothy also rejects some of the same categories as traditional socially responsible funds: tobacco, alcohol, and gambling. However, Timothy will invest in defense stocks.

The fund's stock-picking procedure is simple. The screening by the ministries knocks out 300 to 350 stocks. "That still leaves a big universe," says Ally. Yes, about 6,000 different companies. Systematic Financial Management, a New Jersey money manager that handles about $1.5 billion for other clients, then chooses the stocks in the Timothy portfolio -- 49 at the end of last year --according to its own investment logic.

Systematic is "very conservative," says Ally, talking now in financial terms. The firm chooses stocks that have solid balance sheets and seem underpriced -- unspectacular value stocks, as opposed to go-go growth stocks.

Timothy's top holding is Tecumseh Products, a Michigan company that makes small gasoline engines and refrigeration pumps. Second is Intergraph, an Alabama firm that sells computer graphics and is notably dull by high-tech standards. Third is NCH of Texas, which makes specialty chemicals, welding supplies, plumbing parts, and the like.

These companies are chosen not because they are exceptionally moral but because, in Ally's view, they are not immoral.

It would be nice to be able to say that the Timothy Plan's doubly conservative stock-picking style works well. So far, alas, it has not. Over the past 12 months, the fund has produced a return for investors of 8 per cent. That compares with 26 per cent for the average stock mutual fund and 27 per cent for the Standard & Poor's 500 Stock Index, a broad measure of the market. But one year does not make a track record, and the Timothy portfolio, which also contains chunks of Pinkerton's, Atlantic Richfield, and Cummins Engine, seems well suited for long-term investors.

Nevertheless, these numbers raise an important question for social investors, of the Right or Left: Does a moral approach to investing necessarily sacrifice profits to principle? The performance of socially responsible funds points to an affirmative answer. For example, over the past 12 months, the 40 social funds monitored by Lipper Analytical Services have returned 18 per cent. That's about one-third less than the average fund. Longer-term results are even worse. Since 1991, social funds have returned just 6 per cent a year, compared with 13 per cent for diversified stock funds. In fact, only one social fund, Parnassus, has beaten the S&P return of 14 per cent.

Some Wall Street experts, including those at Lipper, argue that investing is tough enough without eliminating whole groups of stocks. If you buy that line, then a smart approach is to go ahead and invest in Disney and Bally and accumulate all the profits you can so that you can give more to charity -- or to the fight against abortion and pornography, if that's your goal.

My own conclusion, after watching social stocks for many years, is that the reason they perform so poorly is that, for the most part, mediocre managers run them -- partly because, in the culture of Wall Street, these funds aren't considered serious.

Political conservatives should still be happy to have their own social fund in the Timothy Plan. But if you have the time and the inclination, putting together your own portfolio along similar lines might be a good idea. Here are five stocks to consider:

Corrections Corp. of America: This company builds and manages prisons for government agencies in the U.S., Britain, and Australia. It embodies two great conservative themes: privatizing and crime-fighting. Unfortunately, the stock is very pricey, having jumped from $8 to more than $50 in 18 months.

Reader's Digest Association: Here's the world's largest conservative publication, and, since you can't buy stock in NATIONAL REVIEW or Forbes . . .

McDonnell Douglas: In the current issue of Investor's Monthly, the aerospace and defense industry is identified as one of the "market leaders over the next six months." McDonnell Douglas, which makes missiles and aircraft, is one of three companies in this category to which S&P accords five stars (the others are Rockwell International and Lockheed Martin).

Uranium Resources: "Although many traditional ethical investors steer clear of nuclear power, conservative investors might warm to Uranium Resources . . . the only publicly traded uranium miner in the U.S.," says Kiplinger's Personal Finance magazine. This stock has zoomed recently, but uranium prices are still far below their peak.

Philip Morris: Whatever your views on smoking, you may want to show your solidarity with tobacco companies, which have become the target of the Evil Empire -- that is, the alliance of plaintiff's attorneys, prohibitionists, and junk-scientists.

Conservatives, in short, should have no trouble finding stocks that provide a shiver of political pleasure -- along with the more conventional joys of capital gains and dividends.