INDIVIDUAL COMPANIES AREN'T

alone in jumping on the "green wave" bandwagon. Mutual funds are right behind, investing in environmentally responsible companies, companies that are making products to reduce our carbon footprint, or both. Either way, this fast-growing corner of the fund universe has seen a huge jump in interest in the last year or two. "I'm seeing new fund launches practically every month," says Morningstar analyst Michael Herbst.

The funds have had impressive runs in their relatively short lives, but they can't continue their moonshots forever. And since they tend to invest in small and often volatile companies, the ups are large, but so are the downs when they inevitably happen as demonstrated by their sharp declines so far in 2008. For investors with a long-term outlook these funds are still worth a look. But fair warning: They tend to be small and specialized, so expense ratios aren't low and some carry sales loads.

Winslow Green Growth Fund, launched in 2001, has been a strong performer, with a five-year average annual return of about 25%. That's significantly more than the benchmark Russell 2000 Growth index, which saw a five-year annualized return of 16%. Current holdings include Green Mountain Coffee Roasters, Chipotle Mexican Grill and First Solar. The major selling point of this no-load fund is its managers, Jack Robinson and Matthew Patsky. Both have been involved in "green" investing for years, and have a depth of experience that's unusual for environmentally focused funds. Although the expense ratio of 1.45% may seem high, it's on the low end for an actively managed alternative-energy fund. The fund invests primarily in small-cap stocks. If that feels too risky, there's another option. In late 2007, Robinson and Patsky launched the Winslow Green Solutions Fund with essentially the same strategy, except that it targets larger, more established companies like BorgWarner, Veolia Environnement, a French utility, and Ingersoll-Rand.

Investors might also want to take a look at the New Alternatives Fund. This fund also benefits from deep manager experience, with the father-son team of David and Maurice Schoenwald at the helm since 1982. New Alternatives has returned an average of about 20% a year for the past five years, outperforming the benchmark S&P 500's 10% a year. The fund's holdings include alternative-energy companies like solar cell manufacturer Q-Cells, as well as non-energy companies like Owens Corning and Whole Foods Market. The expense ratio is one of the lowest for a green fund at 0.94%, but there's also a maximum upfront sales charge of 4.75%. Morningstar's Herbst's only hesitation is that the managers do all the research and stock selection themselves. They don't have a team of analysts working under them, and no one else is involved in the fund's day-to-day decisions, which is a risk should anything happen to the managers.

Another option is the Calvert Global Alternative Energy Fund, which invests solely in alternative-energy companies. This fund was launched in 2007 and is managed by Jens Peers, head of eco-investing for KBC Asset Management. Peers is based in Ireland, and has a firm grasp of the political and legislative landscape in both the U.S. and Europe. This is particularly important in alternative energy, since government decisions about which types of alternative energy to subsidize can have a significant impact on the companies. Current holdings include Gamesa and Vestas, the two largest wind turbine manufacturers. Apart from its lack of performance history since it only launched last May, the main knock against this fund is its expenses. It has a high 1.85% expense ratio, along with a maximum front sales charge of 4.75%.