More mutual funds and 401(k) plans are getting religion. Morningstar
Inc. reports that the assets in religion-based funds increased nearly
eight-fold since 2000 to about 65 funds worth approximately $17.5
billion. And more investors, younger workers and mainstream investors
are demanding these socially responsible investments as part of their
retirement accounts and 401(k) plans.
These range widely in their holdings-from funds reflecting
Catholic values to Islamic funds screening according to Shar'iah
principles, from conservative, evangelical Protestant funds to socially
progressive funds associated with the Anabaptist tradition, according
to the Social Investment Forum, an organization that promotes socially
responsible investing. In fact, the first American exchange-traded fund
adhering to Islamic beliefs began trading on the New York Stock
Exchange on July 1.
Religious groups, such as the Quakers, were among the first to invest based on their values. Over time others embraced the idea of investing based on their values, and by the late 1960s the modern concept of socially responsible investing-investing for returns and to achieve social good-began to take hold.SRI mutual funds typically screen out companies that produce products such as alcohol, tobacco and weapons or that pollute or abuse workers. But today more funds also use positive screens to look for companies that have the best environmental, social and corporate governance practices.
of our clients who are interested in faith-based investing are also
interested in socially responsible investing and environmentally
responsible investing," says W. Thomas Curtis, a CFP licensee in
Joe Keefe, CEO of Pax World Mutual Funds, which launched the
nation's first socially responsible fund in 1971, attributes the
accelerated demand for sustainable investing strategies to two trends:
"the dawn of a new green economy, and the most severe financial crisis
in 70 years. These two seismic shifts operating together have produced
a generation of investors, both individual and institutional, who are
looking to integrate environmental, social and governance (ESG) factors
into their investment portfolios."
Generally, investors shouldn't purchase religious funds
expecting a better return than others on the market, says Morningstar
fund analyst David Kathman. "They're generally going to be comparable
to other funds in terms of performance," he says. "Some are good, some
bad. The (Islamic-based) Amana funds have beaten the market handily.
Partly, you want to look at the same things you look at for any mutual
fund, their performance, and whether their management has been there
Also, says Kathman, "if you're buying them for religious
reasons, make sure they're in sync with your beliefs. They're not a
monolithic group. Some are fairly culturally conservative. For some
that may be a plus, for others not." He notes that faith-based funds
often have high expenses.
The two main Catholic funds are the Ave Maria Funds and the LKCM Aquinas Funds, managed by the Luther King Capital Management Group. Both groups have restrictions common among religious funds, but differ, as Kaufman points out, in that the Ave Maria funds refuse to own stock of any company that offers benefits to unmarried employees or domestic partners, whether the same sex or opposite sex; the Aquinas Funds don't make that a big criterion. "The Ave Maria Funds are therefore more culturally conservative, whereas the LCKM Aquinas Funds are perhaps less so," Kaufman says.
Two large institutional Catholic investment vehicles, meanwhile, CapTrust Financial Advisors, oversees $5 billion invested in Catholic dioceses and arch dioceses in the U.S., and Christian Brothers Investment Services, manages $3 billion with 1,000 Catholic clients worldwide. A recent survey by CBIS showed Catholic institutions are using their dollars to raise awareness on a range of issues, including genocide, human trafficking and environmentalism.
Among religious funds, the Guidestone Funds is the biggest fund family, according to Morningstar, with approximately $6.4 billion in assets. The funds originated from a pension plan for employees of the Southern Baptist Convention.
The Timothy Plan Funds, a biblically-based family of nine funds in Orlando, Fla., with $440 million in assets, avoids companies that deal with abortion, pornography, alcohol, tobacco, and gaming, along with firms supporting non-married lifestyles. Art Ally, president, teaches biblical stewardship to financial advisors and has created a nine-hour seminar on the subject.
Islamic funds generally avoid businesses involved with pork processing
and investments that bear interest. More Islamic funds are coming on
the market to serve the growing population of Muslims in the U.S. The
Javelin Exchange Traded Funds (JETS) will seek to match the performance
of the Dow Jones Islamic Market (DJIM) Titans 100 Index.
Bruce W. Fraser, www.bwfraser.com/home, a freelance financial writer in New York, is a frequent contributor to Financial Advisor magazine. He can be reached at email@example.com.