|BUSINESSWEEK ONLINE : NOVEMBER 1, 1999 ISSUE|
Funds That Help Investors Answer a Higher Calling
It's getting easier to make sure your money isn't going where your conscience wouldn't go
Just as spirituality is a growing force in the workplace, so is it burgeoning in the investing world. Many faith-based mutual funds have been launched in the past three years to serve investors with strong religious beliefs. These niche funds, geared for Catholic, Islamic, Lutheran, and other observant investors, exclude stocks of companies that sell products that conflict with specific religious convictions and often include companies that promote specific religious agendas.
Demand for faith-based funds has built as individuals have learned more about how mutual funds operate and have delved into their portfolio holdings. "People are finally coming to grips with the fact that it really does matter where they invest their money," says Arthur D. Ally, president of The Timothy Plan, which offers a series of conservative Christian mutual funds. "Some companies are funding the moral disintegration of our land, and our shareholders don't want to own them."
A Sept. 30 study released by Calvert Group, which has about $6 billion under management in socially screened funds, found that 43% out of 800 investors polled were familiar with the concept of socially responsible investing, up from 30% in 1996. The universe of money managed in socially and environmentally screened portfolios has grown from about $1.2 trillion in November, 1997, to $2 trillion today, estimates Jack A. Brill, a San Diego investment adviser and co-author of Investing With Your Values: Making Money and Making A Difference (Bloomberg Press, May, 1999).
IT NEEDN'T COST YOU. Investors are also more likely to choose funds that emphasize moral or ethical concerns in part because these funds have performed well over the past three years. "The stereotype a few years ago was that you can invest by your conscience, but it will cost you," says Bill Rocco, an analyst with mutual-fund tracking and rating firm Morningstar. "It doesn't have to be that way anymore." A recent Morningstar study found that socially screened funds were twice as likely to earn a five-star (the highest) Morningstar rating as the overall fund universe.
This broad group of funds that screen stocks based on social or moral principles -- including funds with progressive political agendas that may conflict with some of the religious funds -- have outperformed mainly because they tend to stay away from tobacco, nuclear utilities, and large industrial companies, and instead emphasize better-performing industries such as health care and software. The religious funds, a smaller subset of the socially screened funds, are too new to judge as a group. But a few have done quite well. Noah (NOAHX), a tiny Christian fund with only $9 million in assets, has earned Morningstar's top rating and has a stellar annualized three-year return of 40% (see table below).
Pax World (PAXWX), a balanced fund (generally 60% in equities, 40% in fixed income) founded by two Methodist ministers in 1971 to avoid defense or weapons-related products, is another standout. Now with more than $1 billion in assets, the low-risk fund is up 8% this year, beating the S&P 500, and has a three-year annualized return of 19%. It isn't specifically a religious fund, but its managers buy companies that "enhance the quality of life" with good environmental policies and pollution control, says co-portfolio manager Christopher Brown. The fund also avoids defense, tobacco, liquor, and gambling stocks. In the fixed-income part of the fund (about 28% of assets), managers shun U.S. Treasuries, since the government may be using the borrowed money to fund the military.
"PRINCIPLES OF TOLERANCE." Many religious investors can be served by one of the broad-based social funds. Generally, they avoid tobacco, alcohol and gaming stocks, and companies with bad records on workplace issues and the environment. The five-star Domini Social Equity (DSEFX), for example, describes its goal as fostering "a more just and sustainable economic system, grounded in principles of tolerance, respect for the environment, and equality." Set up as an index fund made up of 400 large-cap companies, it has returned 25% annually over the past five years and is in the top 2% of funds in its category, according to Morningstar.
Many religious investors also want funds that are specific to their own faith. The Amana funds, which invest according to Islamic principles, avoid many financial stocks and skip bonds altogether since Muslims believe that collecting interest is wrong. The American Trust Allegiance Fund, set up for Christian Scientists, shuns medical or pharmaceutical companies. And The Timothy Plan funds screen out companies that sell pornography, support abortion rights, or "promote the homosexual agenda," Ally says. He argues that most traditional socially responsible funds support a liberal political agenda that goes against Biblical teaching.
If you can't find a fund to serve your religious beliefs, a growing number of private money managers will also work with clients to hand-pick a portfolio of stocks, says author Brill. To be a candidate for private money management, however, you'll need to have at least $50,000 to invest, Brill adds. Most investors clearly still choose to keep religion separate from investing. But those who want their investments to support their spiritual convictions have a growing number of options.
A Sampling of Religious Funds
Fund Assets Year-to-date (Symbol) (millions) Return Religion (through 10/20/99) Amana Growth $14 26.0% (AMAGX) Islamic American Trust Allegiance 20 6.5 (ATAFX) Christian Scientist Aquinas Equity Income 57 -2.5 (AQEIX) Catholic Lutheran Brotherhood 1,373 6.0 (LUBRX) Lutheran MMA Praxis Growth 150 3.0 (MMPGX) Mennonite Noah 9 3.5 (NOAHX) Christian Timothy Plan 15 -7.0 (TIMBX) ChristianBy Amey Stone in New York
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