Is it moral to invest in war if the enemy is terrorism?

When Art Ally shops for an ethical investment, he looks where many other socially minded investors would never tread - that is, among weaponsmakers, oil producers, and designers of global-tracking technology.

Mr. Ally takes that path because his investors see America's multifaceted war on terror as a just, even heroic, cause they can support with a slice of their savings. In doing so, they rank among a growing group of concerned citizens who want somehow to put their dollars to work against terror.

Yet as the market adjusts to meet demand for antiterror stocks, the road to riches and homeland security alike is turning out to be paved not only with hawks but also doves, enigmas, and more than a few frauds.

In the hawkish camp is Ally's Timothy Plan's Patriot Fund, which he launched May 1. The mutual fund owns shares in such companies as URS Corp., an engineering concern that keeps fighter planes and military bases humming, and UNOVA Inc., whose tracking technologies are expected to be required equipment on vehicles used by the Department of Defense and its vendors in 2005.

"We thought it was time to launch a fund that appeals to people who still support the United States of America," Ally says. "It's for people who are fed up, like I am," with widespread criticism of the war on terror and its leaders.

Ending terrorism has likewise become a priority at the other end of the political spectrum for pacifists at Mennonite Mutual Aid Praxis Mutual Funds. Meetings between fund managers and executives with operations overseas now regularly explore what those companies are doing to mitigate factors that might someday lead to attacks on innocents. But the tactics here look nothing like the Patriot Fund's.

For instance, while the Patriot Fund favors domestic-oil producer Comstock Resources Inc. in order to reduce dependence on foreign oil, Praxis prefers Britain's BP. One reason: BP has "created local millionaires all over the place" by paying full price to Middle Eastern shepherds and others who give up land for a pipeline. "When people are economically engaged, they are less likely to engage in terror," says Mark Regier, manager of stewardship investing services for Praxis. "By channeling resources to countries that are underresourced, we eliminate some of the pressures that allow terrorism to take hold."

Since the 9/11 attacks, interest in stocks related to the war on terror has surged. One barometer, the Fidelity Select Defense and Aerospace Portfolio, has more than doubled its assets under management since 2001, while averaging a strong 17 percent annual gain.

The Securities and Exchange Commission, meanwhile, points to another indicator: a steady stream of interest in fraudulent products that promise an edge in the fight against a hidden enemy.

In late September, for instance, the SEC filed a civil suit against an attorney and two stock promoters of a "manufacturer" of a fake product that claimed to wipe out deadly germs, including anthrax, in five minutes.

Many would-be investors are seeking riches in similar antiterror scams, according to Susan Wyderko, the SEC's investor education director. She knows because her department operates five decoy websites, three of which use war-on-terror themes to entice and teach a lesson to gullible investors. Activity has been steady, as visitors vie to invest, for instance, in the fictitious Old Glory Funds with names like "Victory" and "Liberty." Another fake, www.mcwhortle.com, has received more than 2 million hits since its debut in January 2002.

"Crooks read the newspapers," Ms. Wyderko says. "They're playing on a popular sympathy for a popular cause, in this case, playing on a desire for America's defense.... That theme has been remarkably resilient over the past three years."

Frauds notwithstanding, some supporters of the war on terror insist that the private sector has an essential role to play in the effort. But again, tactics vary with divergent viewpoints on what works.

Today's terrorist threat comes mostly from rogue states identified by the US State Department as sponsors of terrorist activity - North Korea, Iran, Syria, Sudan, and Libya - says Frank Gaffney, President Reagan's former deputy assistant secretary of Defense.

To dry up their coffers, Mr. Gaffney argues, companies must stop doing business there and consequently make the financial squeeze as unbearable as it was in the 1980s for South Africa under apartheid.

"Responsible investing has an effect on corporate behavior," says Gaffney, who serves as president of the Center for Security Policy in Washington, D.C. "We're saying the [South Africa divestment] model should be tried because there is more riding on it in terms of the safety and security of Americans.... That's what we think the turning point will be in this effort" if investors come to insist that nations with terrorist ties be shunned.

That approach drew fire, however, in September after the center assailed all 50 state pension funds in a report entitled, "Terrorism Investments of the 50 States." America's largest pension funds, the report said, are - through their investments - tied to firms whose projects in rogue nations are worth $73 billion. Pension fund representatives rejected the charge, saying the divesture proposal would result in "punishing companies whose activities in no way compromise national security, and unnecessarily harming American companies, jobs, and shareholders."

As sparks fly around what to do in the short term, ethically minded investors might be able to douse some of the long-term flames now escalating tension between would-be terrorists and the West. That's according to Gary Moore, a Florida adviser to ethically minded investors. To avoid companies determined to widely export such vices as alcohol, tobacco, gambling, or risqué entertainment, he says, might help defuse a primary source of cross-cultural conflict.

"Combining our religious or ethical values with our economic activities, such as investing, is the only peaceful way to fight terrorism," Mr. Moore says.

For most mutual funds self-described as socially responsible, investing to thwart terror has not ranked this point highly, if at all, on their lists of agenda items. But having seen corporate scandals imbue some of these funds with a new reformist mission in recent years, some activists hope something similar could happen to add the war on terror to an expanding list of top agenda items.

"If you're willing to say, 'We will not allow companies that manufacture tobacco into our portfolio,' " Gaffney asks, "then how on earth can we say, 'People who are trying to kill us can have their financial supporters in the portfolio?' ... It just doesn't make any sense."