How does one balance religious principles with healthy returns?
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?
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.
Leonard: Unless I do some really insane things between now and the end of the month, we'll have a very good [five-year] track record. As of the end of September, it put us in the top 1 percent of all large-cap growth managers. And we're using heavy screening.... So I haven't really run into that problem, fortunately. But I'm sure I will.
I always tell my clients: "There's going to come a time when you're going to think I'm the stupidest person that ever walked the face of the earth." At that point in time, I suspect that the fact that we're doing this in a way that reflects their beliefs will hold them longer than they otherwise would have held.
Collins: We have had that time. [There] was a wonderful time in the late '90s and we did some awfully good stock-picking. And then as the market fell apart, 2001, etc., there were some difficult periods. We did ask ourselves: "Where's our intelligence?" It's a time where ... you want to stick to your discipline, your standards. And that ultimately has proved to be successful.
Do you ever invest in companies that don't completely live up to your standards?
Leonard: There are times when we say: "You know, this one's on the borderline." Sometimes you monitor it for a while and see whether those particular things we're worried about get worse or get better. And if they get better, then we say: "OK, we're going to accept this one."
We try, from a Christian perspective, to apply grace wherever we can. I make mistakes. I'm not perfect. Companies make mistakes. They're not perfect, either. We're looking really at the board level and at the CEO-management level.
If they have a desire that's very obvious that would push in some of these areas that would be disconcerting to a Bible-based Christian belief system, then we say: "We don't want to be there." But if it's not evident, not that strong, we try to apply grace where we can.
Rusty, you also publish MinistryWatch.com, which investigates the financial dealings of Christian ministries.
Leonard: We have certain talents and we're trying to utilize those to increase the wealth of our clients. But if that's all we did for people ... we'd be leaving a blessing off the table. So we want to say: "Listen. You really want to be blessed? Learn how to give well as well as make well." So we're trying to do that through MinistryWatch.com, giving people the same tools we use on the investment side so they can make the most wise and effective use of their giving.
Do you ever find yourself slipping toward that love of money, which the Bible warns against?
Collins: Greed will not let you be a good investment manager. A good investment manager always needs to maintain a sense of discipline, or rationality, devotion to the client, devotion to the craft.... We've learned what has happened to mutual funds and investors just a few years ago. There was a real falling out and really healthy work done by the regulators. And I think we're all benefiting from that.
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