Religious funds draw money in difficult market
NEW YORK — Sam Saladino’s mutual fund wasn’t even a year old when the stock market began slipping. But even through the punishing run in stocks this year, he’s managed to attract investor dollars and beat his benchmark.
His Epiphany Fund, which invests according to Catholic principles, is among those that use religion as a guidepost and that could grow more popular as investors look to distance themselves from the excesses that led to an overheated housing market and an unsustainable climb in stocks.
Saladino has been surprised by the interest in his fund and gives some credit to the stock market pullback that started in October 2007 and the recession that began soon after. He said investors not only have a new distaste for risky investments but also a yearning for back-to-basics investing.
“We still get people who call and thank us for the sacrifice we made to start this. I don’t know if that happens at Fidelity but I doubt it,” Saladino said.
The buttoned-down approach of many religious funds isn’t necessarily in keeping with Wall Street’s brand of conservatism, which could simply mean putting money in safe holdings like government bonds. Instead, these funds might select stocks of companies that aren’t seen as supporting or profiting from things like abortion or alcohol. The funds can also rely on standards that are less overtly religious. They might shun investments in companies seen as having excessive CEO pay or taking undo financial risk.
Religion aside, the results of this weeding-out can be impressive for investors. Saladino sold a stake in American International Group after it ran afoul of one of the fund’s routine reviews. The sale came before the government bailed out the company and AIG shares tumbled.
The fund, which will be two years old next month, is down 33.5 percent for the year compared with compared with a 40 percent slide in the Standard & Poor’s 500 index. Funds that are new can attract money quickly but that’s harder to do in a volatile market. Epiphany fund’s assets have doubled since June to $2 million.
Other funds guided by religion are staying ahead of the market. Saturna Capital Corp.’s Amana funds comply with Islamic law and avoid investments in financial companies. The fund sidestepped the plunge in these stocks after bets on mortgages and other debt began to sour. The company’s income fund is down 24 percent this year.
Amana funds have drawn new investor dollars each month this year. Even with the market’s tumble, assets stand at about $1.2 billion, up from $1 billion in November last year.
Monem Salam, director of Islamic investing and deputy portfolio manager for Saturna, said the funds’ long focus on companies with low debt and strong balance sheets is a sensible strategy even if it means missing out on the occasional hot stock.
“If we gave up 1 or 2 percentage points for not taking on the risk this is definitely where it is helping us out,” he said.
Other Islamic funds are staying ahead of the broader market because they likewise aren’t burdened by financial stocks. Through early December, the Dow Jones Islamic market U.S. index was down 34 percent for the year, while the Dow Jones Wilshire 5000 composite index, which reflects nearly all stocks traded in America, was down 39 percent.
Like Salam, Saladino also hunts for well-run companies with solid financial pictures. “I’m looking for companies that pay a dividend,” Saladino said. “I feel like it’s a little harder to cook the books when you’re paying a dividend.”
“This economy, this event, is a little bit of a wake-up call,” he said of the market’s slide and the economic crunch that has thrown millions of workers out of work. “It’s definitely investors saying ‘Hey, wait, greed has gotten a little bit out of control.”
Of course even a wellintentioned fund isn’t much use if it doesn’t perform.
David Kathman, mutual fund analyst at Morningstar Inc., noted that expenses on some religious funds can be higher than average. And it’s important for investors to evaluate the funds as they would any others.
“They need to apply the same level of rigor, looking at expenses, the track record, the management,” he said. “Presumably if you’re buying a fund like that you have certain religious standards that you want to apply and you want to make sure the fund adheres to that.”