First Union Corp., venturing into one of the loneliest corners of the investment world, has launched a fund that emphasizes "socially responsible" investing.

The Evergreen Select Social Principles Fund was introduced last month. It is one of only about 40 mutual funds whose investment policies include litmus tests of environmental, political, or social good-for instance, ruling out stocks of companies that deal in tobacco or weapons.

Just one other bank, Mellon Bank Corp., has such a fund: the Dreyfus Third Century Fund. (KeyCorp, in a variation on the theme, in March launched a fund that invests in blue-chip companies that make diversity a top priority.)

Socially responsible funds, virtually unknown a decade ago, have taken root to some extent, boasting more than $7 billion of assets at yearend 1996. But that pales in comparison with the $4.3 trillion of assets in all mutual funds.

Banks by and large are not poised to launch such funds because there appears to be little consumer demand for them and because their fund families are still relatively young.

William Ennis, managing director of First Union's $40 billion Evergreen Funds family, said that as banks expand their product lines and attract a critical mass of investor dollars, they will add socially responsible funds.

"The reason we and Mellon have them is we have fleshed out our product spectrums and have the ability to bring it to scale," he said.

Their returns can be quite respectable: The Parnassus Fund, a nonbank fund with nearly $400 million of assets under management, has returned 52.3% over the last year, while the S&P 500 returned 26.2%. Dreyfus' Third Century Fund, which has almost $800 million of assets, returned 26.4%.

But Burton J. Greenwald, a mutual fund consultant in Philadelphia, said he doubts banks will jump on the mini-bandwagon anytime soon.

"Banks have carefully stepped one step at a time into bonds, money market, equity, more aggressive equity, and finally into international funds," he said. "The socially responsible category is one they have blithely ignored."

First Union's Social Principles Fund was created by converting the bank's $120 million common trust fund, which has had socially responsible investment criteria since its formation in 1991, into a mutual fund. The fund caters to institutional investors; Mr. Ennis declined to describe the kind of groups that own the fund.

While few banks offer third-party socially responsible funds through their retail brokerage departments, many do through their trust departments.

Amy Domini, president of the Domini Social Equity Fund in New York, said that 25 bank trust departments account for 10% of the fund's $262 million of assets.

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