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How does one balance religious principles with healthy returns?

March 13, 2006

They come in many flavors: mutual funds for Roman Catholics, Lutherans, Mennonites, even followers of Islam. But how do religious investors balance moral principles with decent returns?

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To find out, the Monitor's Laurent Belsie talked recently with the heads of two religious investment firms.

Rusty Leonard is chairman of Stewardship Partners Investment Counsel in Matthews, N.C., which helps individuals use biblically responsible investing. Paul Collins is founder of the American Trust Allegiance Fund, a Lebanon, N.H., mutual fund tailored to the preferences of Christian Scientists.

Here are excerpts:

Full disclosure here, Paul. Your fund caters to members of the church that publishes this newspaper. How does your religion influence your stock picks?

Mr. Collins: We screen stocks consistent with the desires of our investors. As Christian Scientists, they wish us to screen out tobacco stocks, alcohol as well, gaming stocks, pharmaceuticals, and medical diagnostic equipment.

Mr. Leonard: Our beliefs come from a conservative Christian perspective and biblically based perspective.... It actually takes two forms. One is to exclude certain things - alcohol, gambling, and tobacco, of course, much like a lot of people. But we also are looking for companies that aren't involved in pornography. Companies that are involved in abortion, we want to exclude those. And there's various other human-rights issues. In fact, there's 55 different things that we look for to potentially exclude a company.

But there's also the positive side of the equation. We're looking to find companies that are uplifting to mankind, that reflect our Christian beliefs in a positive manner, and that we can be proud to own.

What's a proud holding?

Leonard: One that we've highlighted in the past is Aflac, which goes out of its way to help a lot of its employees. They have a lot of working mothers, so they have a whole lot of programs in place to help the working mothers ease that burden.

But isn't it tough to diversify your holdings? Paul, you screen out healthcare, which represents about 13 percent of the economy.

Collins: There are approximately 10,000 publicly traded stocks out there. By applying these screens I just mentioned, you limit them to maybe 9,000. So there are still plenty of opportunities out there for people who wish to engage in religiously or ethically motivated investing.

From 1999 to 2002, the number of religious mutual funds more than doubled. Why is this sector growing so fast?

Collins: The old adage that you're either making money or doing good - one or the other - has gone away.... Investors finally have realized that they have the opportunity to actually make a difference with their investment dollars.

But returns for religious funds, overall, haven't been stellar.