Should faith be a factor when it comes to managing your money?
For more than a handful of investors, the answer appears to be yes. These are people with strong religious beliefs whose investing concerns have encouraged the development of nearly 30 funds with a religious affiliation.
While the oldest fund, the Lutheran Brotherhood Fund, goes back to 1970, five funds alone were started this year.
The funds have been introduced by organizations representing a variety of denominations: Lutheran, Roman Catholic, Islamic, Christian Scientist, evangelical Christian, Mennonite and United Methodist. Some–such as the AAL family of funds, owned by the Aid Association for Lutherans in Appleton, Wis., and the Lutheran Brotherhood funds in Minneapolis–are marketed and sold only to members of the Lutheran faith.
But others–among them the Timothy Plan Fund, which follows fundamentalist Christian beliefs, and American Trust Allegiance, a Christian Scientist fund–are additions to a fairly new category: They screen their potential investments for those companies whose practices do not offend their religious beliefs. Three of the five new funds are of this type.
“It’s a relatively new and growing niche,” said Laura Lallos, who tracks these funds for Morningstar Inc., the fund research firm in Chicago. “I think basically it has become a new trend for conservative Christian investors to invest in this way.”
The rewards of owning shares in these religious mutual funds can, as with more broadly invested funds, vary. Their performance in the third quarter mirrors that of the many actively managed funds that outperformed the Standard & Poor’s 500 stock index in those three months. But for investors in funds with longer-term results, the rewards have been generally more spiritual than statistical, as most lag behind their market averages.
“We try not to make much out of short-term performance,” said Lallos, “and many of these funds have only brief track records. But at the same time, these are very small fund families, they don’t have big bucks to hire name managers, and if they do underperform for the longer term, I think by far the most likely explanation will be the quality of management and research resources as opposed to the screen.”
But, said Lallos, “the more funds there are, the more that increases competition and usually returns.”
Lutherans have started the most funds–seven Lutheran Brotherhood portfolios and eight AAL funds–but neither group limits its investing to the precepts of the religion.
Catholics have the most religion-restricted mutual funds: four Dallas-based Aquinas funds and a new fund, the Catholic Values Investment Trust fund, that began in May.
The Catholic Values fund, based in Bridgeport, Conn., invests in large companies. Judy Inosanto, a spokeswoman, described it as “a viable investment option not only for the 50 million to 70 million Catholics in the United States, devout or not, but also for the thousands of institutions, such as the numerous Catholic universities and archdioceses, throughout the country who want to take extra care in ensuring that they practice what they preach.”
These funds are like the socially responsible funds in their attempt to limit investments based on beliefs. Funds termed socially responsible, however, are usually liberal-leaning and avoid investments in companies that discriminate in terms of sex, race or sexual orientation; that degrade the environment; that make weapons, alcoholic beverages and cigarettes; and that generate nuclear power.
The religious funds, meanwhile, avoid some of the same investments, but certain funds also pointedly eschew stocks that the socially responsible funds would accept. The Timothy Fund, for example, does not invest in companies that offer health benefits to gay partners or in companies that market what the fund believes to be pornography.
The fund, based in Orlando, will not invest in Walt Disney, for example, because of the studio’s association with movies that fund management considers offensive.
Among other religious portfolios, the Catholic and fundamentalist Christian funds avoid companies that encourage or are involved in abortion in any way, and American Trust Allegiance does not invest in any medical or drug companies or in tobacco, liquor and gambling stocks.
The Amana funds, started by Moslems, do not invest in the money market or most banks because collecting interest is against the religion’s teachings. The MMA Praxis funds, begun by the Mennonite Mutual Aid, shun military-related companies like Boeing because Mennonites are pacifists.
Given their assorted restrictions, what stocks do some of these funds like?
The Amana funds and MMA Praxis Growth have been invested in ARCO, which Nick Kaiser, portfolio manager of Amana Income in Bellingham, Wash., said looks promising because of new drilling.
Merck, which Kaiser noted has been a steady performer for his fund, was among the top 10 holdings of the Lutheran Brotherhood Fund, Noah and Pax World at midyear.
The Catholic Values fund avoids tobacco stocks for what it calls financial as well as moral reasons, but at midyear the eighth-biggest holding of Aquinas Equity Income, another Catholic fund, was RJR Nabisco.
The good intentions of investors notwithstanding, however, some in the financial industry said investing in these restrictive religious funds is not adequately rewarded.
Thomas Van Dyck, managing director with the social equity investment group at Piper Jaffray in San Francisco, said, for instance, that the investments made by religious mutual funds, unlike traditional socially responsible funds, seemed to have little positive sway on corporate bottom lines. Even so, “it’s always good to invest in what you believe in,” he said.
Tony Sagami, a money manager in Austin, Texas, takes a more secular view. “Restricting your investment criteria, whether it’s a socially responsible fund or one that adheres to religious principles, makes about as much sense as restricting your fund options to a single fund family,” he said. “You might do OK, but your odds are a lot better if you cast a wide net.”
