Wouldn't it be great if we could say that mutual funds always outperform when they invest in companies that are developing technologies to lessen our dependence on fossil fuels or that manufacture products without hurting the environment or that put a priority on worker safety?

Of course the don't always outperform, nor should we expect that. So many factors play into how particular investments perform that one can't look at green companies and think that all they have to do is be on the cutting edge of promising ideas for us to make millions.

And if any year proved that green doesn't always turn to gold, it was last year. I recently chatted with Michael Herbst, a mutual fund analyst who follows green, natural resource and traditional energy mutual funds for Morningstar Inc. He noted 2008 was a pretty sobering one for green mutual funds. (Of course, I don't have to tell you that wreckage could be found in almost every corner of the equity markets last year, and this year seems to be getting off to a bad start as well.)

Herbst sees green funds breaking down into a couple of subgroups. Managers in one group focus mainly on alternative energy and energy efficiency. "They tend to focus on smaller-cap or early stage companies that can be harder hit by shifts in the economy, whether they are at a younger stage in their own group or they need funding to continue operating. When green funds sell off or hit a tough patch, expect these to fare worse-and that certainly played out (in 2008)," he observes. Two examples he pointed to are Winslow Green Growth Fund (WGGFX) and Guinness Atkinson Alternative Energy (GAAEX). Winslow was down a whopping 61% in 2008, while Guinness Atkinson fared even worse, down 66%.

The other group of green funds Herbst looks at are those that tend to choose investments by following a "best in breed" strategy-for example, is Toyota greener than GM? An example he gave in this category is Portfolio 21 (PORTX), which was down 35.5% last year.

There's a lot of hope that President Obama will be able to make good on his promise to increase the U.S.'s investment in clean energy, and one would think that will give a lift to the green sector. Over the long run, clean energy and green investing seem like a good bet and now might be the time to get some limited exposure at more realistic levels. But don't lose sight of reality, even when the euphoria starts to build again.