The figures, which are discussed in WM's annual review of charity funds for 2007, show that funds that excluded tobacco, aerospace and defence, beverages, restaurants and bars or gambling lost out over both three and five-year periods.
This loss in the short term is because both tobacco and aerospace and defence significantly outperformed the index in recent years. But the report says market commentators argue that socially responsible companies should outperform others in the longer term.
"There is no doubt that, technically, SRI investments have been a drag on performance," said Richard Maitland, head of charities at Sarasin & Partners.
"Generally, ethical funds perform well in a bull market and badly in a bear market. A huge part of being a successful ethical manager is working out where to redistribute money that would have been invested in excluded sectors."
Sam Collin, charity adviser at the Ethical Investment Research Service and UK Social Investment Forum charity project, agreed that skilled investors could mitigate the financial risks. "Good fund mangers will rebalance the portfolio to take account of the exclusions," she said.
She added that, overall, charities that invested ethically did not suffer financially. "The returns can be just as good, though volatility can be higher," she said.
The research found that 65 per cent of charity funds have a stated SRI policy and 15 per cent plan to put one together in the near future.