These mutual funds focus on investing that’s faith based
This is a season for religious gatherings and holidays. Jews have started Passover celebrations, Muslims are marking Ramadan and Easter has arrived for Christians.
It’s a time of reflection and a moment to affirm a commitment to faith for believers. But is it also an opportunity for adherents to alter their investment plans and base them on religious principles?
Religious or faith-based investment funds provide one answer. These portfolios all try to provide investors with solid returns without buying stocks or bonds issued by objectionable or “sinful” companies, though those definitions vary.
Most Americans probably don’t invest in this manner, though faith-based investing is getting easier to do with the advent of more religious mutual- and exchange-traded funds. These portfolios have professional money managers at the helm who can, among other tasks, sort through companies based at least partly on the types of businesses they operate.
Mutual funds and exchange-traded funds are both examples of broadly diversified portfolios that investors usually can purchase for a few thousand dollars, if not less. The two categories vary in a few key respects — one being that people can buy or sell mutual funds only at a single daily closing price, while ETFs can be traded at various prices throughout the day.
Not a large grouping of funds
While religious funds have existed for decades, they haven’t taken the investment world by storm. The funds are still comparatively few in number, with relatively small assets under management.
Investment researcher Morningstar doesn’t even break out religious funds as a separate category, instead lumping them in the larger ESG — or environmental, social and governance grouping — which numbers around 600 funds.
Broader ESG portfolios often are more geared to avoiding carbon polluters, other environmental violators and companies engaged in animal testing/ abuses. Religious funds are more focused around lifestyle issues.
While Christian funds predominate among the religious offerings, Islamic funds also have gained a following, such as the Amana mutual funds managed by Saturna Capital. The Amana funds steer clear of businesses engaged in liquor, pornography, gambling and banking. They also avoid bonds and other conventional fixed-income securities, favoring dividend-pay stocks for income.
For example, large holdings in the Amana Income Fund include dividend payers Eli Lilly, Microsoft, Taiwan Semiconductor Manufacturing, Rockwell Automation and Pfizer.
Another Islam-focused portfolio, the Azzad Ethical Fund, excludes those types of corporations as well as tobacco producers, weapons manufacturers, some insurance companies and corporations suspected of being connected to human-rights abuses.
Different areas of emphasis
Even under the same general religious banner, faith-based funds differ somewhat in their investment emphasis, especially when screening out companies.
The Ave Maria fund family, for example, favors corporations that follow, or at least don’t violate, anti-abortion Catholic values. The fund group said it avoids investments in several key areas — corporations engaged in or supporting abortion including Planned Parenthood, pornography, embryonic stemcell research and companies with policies deemed to undermine the sacrament of marriage.
Incidentally, advisers to the Ave Maria funds range from Detroit Archbishop Allen Vigneron to economist/Fox News anchor Larry Kudlow to Lou Holtz, the Notre Dame football coaching legend.
By contrast, the new FIS Biblically Responsible Risk Managed Fund, based in Scottsdale, enunciates a longer list. This fund won’t invest in corporations believed to be involved in abortion, contraception, embryonic stem-cell research/human cloning, human-rights violations, pornography, alcohol, tobacco, armaments or gambling.
“This fund is designed for the broad Christian community,” said manager Steven Nelson, a former Catholic youth minister. “For most Christians, our fund will have appeal.”
The fund also seeks to invest in companies that it deems are building a healthier society and acting as responsible corporate citizens.
Much is in eyes of the beholder
But in many cases, portfolio managers don’t always have a clear-cut decision on whether a corporation would make an acceptable faith-based investment — not just based on business operations but also in terms of which groups or causes a firm supports with its philanthropic dollars or promotional efforts.
For example, some Christian portfolio managers will blankly avoid companies that, say, donate to gay-rights groups or Planned Parenthood, Nelson said. His fund also avoids such companies on donations made within the past two years but not longer than that.
It also comes down to context. For example, if a company like Verizon gave $5,000 to an objectionable nonprofit group, clearly reflecting an employee match, Nelson said he wouldn’t remove or avoid the stock on that basis. “But some managers would,” he said.
Top stock holdings in the FIS Biblically Responsible Fund, which trades under the ticker symbol “PRAY,” include Palo Alto Networks, Apple, Medtronic, Ecolab and Zimmer Biomet. The fund also holds shares in two Arizona-based corporations — trash hauler Republic Services and GoDaddy, the technology-services provider for small businesses.
Do religious funds sacrifice returns?
To the extent that religious funds aren’t widely embraced, that could partly reflect a perception that, by weeding out stocks or bonds in certain industries, investors will sacrifice performance.
Yet one study, from the Christian Investment Forum, showed solid results.
The study tracked the returns of 35 Christian stock funds against other stock funds over the 15 years through December 2020. Christian funds gained 7.1% annually on average over that period, compared with 6.3% annually for the other stock funds. The study also attributed a slight performance edge to nine Christian bond funds against fixed-income funds in general, 4.2% annually compared with 3.8%.
While based on a relatively small number of both stock and especially bond funds, the results offer some support for the religious-investing cause, at least for individuals who share similar values.
The study “dispels some of the longstanding perceptions that incorporating faith-based criteria, in addition to traditional investment criteria, is correlated to underperformance,” wrote the study’s author, John Siverling.