Do you have clients who still have a healthy dose of outrage at the big banks?

Well, now, there is a fund that specifically shuns the banks deemed too big to fail.

Appleseed Fund is a socially responsible fund that excludes tobacco, gambling, weapons and pornography. And as of this month, it has added big banks to that list.Specifically, it refuses to buy a stake in any bank that has more than $10 trillion in derivative contracts, said Josh Strauss, who co-manages the fund.

The “very large, very inter-connected banks” represent a potential burden to the public through bailouts, Strauss said, to the point that a socially responsible investor would want to avoid them.

At the moment, this screen only would exclude five companies: Citigroup [C], Goldman Sachs [GS], JPMorgan Chase [JPM], Morgan Stanley [MS] and Bank of America [BAC]. While this new screen is a popular choice with many investors, he said, it wasn’t that difficult for the fund to implement. Because while the fund has about 14% of its assets in financials (it’s the third-biggest allocation) it didn’t own any of those banks anyway. In fact, except for Citi, which it sold in 2007 at $44 per share, it never owned that list of names. The financial it does own are mostly insurance companies, asset managers and REITs.

Misguided or not, it seems to us like much of the public outrage toward banks has dissipated somewhat since the economy has tiptoed back from the abyss. With the passage of time (not to mention new regulation), most people seem to have moved on. All of which prompts one question: Is this change at Appleseed really a substantive move, or is it a marketing gimmick?

Put a little more colloquially: A screen for five companies, really?

Strauss, of course, says no, this is not just a marketing gimmick. In fact, he says that the anger toward banks has not, in fact, dissipated for many people. And he’s confident that many investors out there will agree with the sentiment of excluding these companies. Since it was implemented just this month, it’s too early to gauge money inflows from this change.

The fund’s track record is good, that much is certain. Since it launched in December 2006, its annualized return is 5.8%, compared to the S&P 500s performance of -6.3% in that same time. Most of that outperformance can be chalked up to the fact that the value fund is simply a good bear market investor, more so than a result of the SRI screens, Strauss said.

If your clients feel this same outrage to the point that they wish to withhold their money from these companies, you’ll have your work cut out for you.

This screen, and these companies, may be a start, but this thinking could easily expand to encompass a bigger swath of the financial landscape. Because it’s really the interconnected aspect of the industry, more than the size of the banks, that caused much of the pain over the past few years. And when you look at the connections with an eye toward screening investments, the list of excluded companies balloons faster than an adjustable mortgage payment.

What about the companies on the other side of these derivatives contracts, should they eventually be excluded? And what about the banks that originate subprime mortgages? What about the investment banks that take those loans and slice and dice them into bonds? What about the rating agencies that gave those bonds investment grade ratings?

The financial crisis surfaced in unexpected ways and in unexpected places (Iceland?) so if someone is really hell-bent on excluding the companies, there are a lot of considerations beyond five big banks.

So you have your work cut out for you, but, again, this is a start.

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