Finding value in funds that cater to faith
BOSTON — More Americans apparently want to make investment choices that match their religious values.
And the mutual-fund industry has responded to that message with a growing evangelical zeal.
The number of religion-oriented mutual funds has jumped to 36 now from six in 1993.
So if you want your money to follow Muslim guidelines, the footsteps of Christian Science, or the perspectives of the pope, there's a fund for you.
"This is a tremendous growth area," says Stephen Bolt, president of Shepherd Financial Services.
Eight weeks ago, the Nashville, Tenn., mutual-fund management company launched two new funds aimed at the evangelical Christian market.
"This is a market that has been neglected," says Mr. Bolt. "Given the option, Christians prefer to have their money invested in a way that is a reflection of their Christian values."
His funds screen out companies that deal in tobacco, liquor, gambling, and pornography. They also eliminate companies seen as supporting abortion (through executive contributions to Planned Parenthood) and homosexual lifestyles (employee benefits to same-sex partners).
Other funds serve Mennonites, Muslims, Lutherans, Christian Scientists, and Roman Catholics
"In the last two months, we have seen an explosion of interest in this field," says Gary Moore, a Sarasota, Fla., author of several books on religion and investing. "This movement is much larger than everyone thinks."
In the scale of the multitrillion-dollar mutual-fund industry, religious funds don't add up. Their assets under management total $4.5 billion, up from $1.5 billion 10 years ago, according to a study by Wiesenberger, a Rockville, Md., firm that tracks fund performance. But a chunk of that growth results from rising stock prices, rather than the inflow of new money.
Religious funds are just one corner of a much larger group seeking socially responsible investments (SRI). These funds have at least $1.2 trillion under management, says Steve Schueth, president of the Washington-based Social Investment Forum.
"People want investment stuff delivered to them their way," notes Mr. Schueth. That way can range from funds aiming at homosexual investors, women, environmentalists, the politically correct, and so on.
"The prospects are pretty much unlimited," he says. "There is a customizing or narrowing process under way. There is an alignment between investor values and investment values."
Screens for religious funds differ according to the moral and ethical views of various religions.
For instance, three MMA Praxis funds filter out "sin" stocks and nuclear-energy providers. They also eliminate defense companies because of the pacifist views of Mennonites and other Anabaptists, their primary customers. They even avoid United States Treasury bonds because they help fund defense spending.
The Praxis funds also have positive filters for companies "doing things good for the environment or the community," notes J.B. Miller, sales manager for the Goshen, Ind.-based funds.
American Trust's Allegiance Fund, based in Lebanon, N.H., won't invest in "sin" stocks, or medical or pharmaceutical companies because of its chiefly Christian Science investors.
Several Aquinas funds, serving Roman Catholics, avoid companies that provide abortion services and makers of mass-destruction weapons. But they seek out companies they want to encourage, such as those providing affordable housing.
Amana Growth and Amana Income funds serve the Muslim community. These funds avoid stocks of financial firms (they charge interest on loans) and companies that sell pork products, gambling, and liquor.
The oldest religious funds, Lutheran Brotherhood and the AAL (Aid Association for Lutherans) avoid "sin" stocks.
Investors looking for performance as well as values have a tougher time. Religious funds, more often than not, underperform the key stock-market indexes (see chart, right).
One exception is the two-year-old Allegiance Fund. In the year ending April 30, its shares rose 31.6 percent, a bit more than the Standard & Poor's 500 Stock Index. Last year, this $16 million fund rose 36.7 percent, beating the S&P 500 at 28.6 percent.
American Trust president Paul Collins attributes the fund's success to its selection of companies with strong earnings growth. "It is a much safer way," he says.
Less fortunate were investors in Lutheran Brotherhood Opportunity Growth. The small-cap fund lost 17.2 percent in the year ending April 30.
On average, the religious funds tracked by Wiesenberger showed a five-year annual return of 13.57 percent versus 14.78 percent for all equity mutual funds. That compares with a gain of about 24 percent for the S&P 500. The 10-year return, for those few funds around that long, was 12.87 percent, compared with 14.45 percent for all equity funds.
Mr. Moore warns that investing in religious funds requires caution. "Christians have a responsibility to be prudent in their investments," he says. And some small religious funds may have high administrative expenses.
Moore does, however, welcome indications that investment with ethical motives in mind does not necessarily cost money compared with investing regardless of values.
He points to the Domini Social Index of 400 companies, which screens for dozens of kinds of corporate behavior. It has had an average return of 21.5 percent a year from its inception in May 1990 through 1998. That beats the 19.4 percent return of the S&P 500.
Where values are sifted
Do your mutual-fund investments square with your values?
One Web site offers one way to check it out. Call up money.crosswalk.com/investigator/ and then put in the name of your fund. It will review the portfolio with a filter that shows the percentage of holdings involving abortion, pornography, antifamily entertainment, unmarried lifestyles, alcohol, tobacco, and gaming.
By this screening process, the nation's biggest mutual fund, Fidelity's Magellan Fund, failed. It had 35.52 percent exposure to these classifications.