Re­li­gious funds draw money in dif­fi­cult mar­ket

The Covington News - - Religion - By Tim Paradis

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.”

Ev­ery Sun­day

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