Faith-based investment options are growing for religious portfolios


It is a season for religious gatherings and parties. Jews have started Passover celebrations, Muslims are celebrating Ramadan, and Easter has arrived for Christians.

It is a time for reflection and a time to affirm a faith commitment for believers. But is it also an opportunity for members to modify their investment plans and base them on religious principles?

Religious or denominational investment funds provide an answer. These portfolios all attempt to provide investors with solid returns without buying stocks or bonds issued by objectionable or “sinful” companies, although these definitions vary.

Most Americans probably don’t invest this way, although faith-based investing is becoming easier to do with the advent of more faith-based mutual funds and exchange-traded funds. These portfolios are managed by professional fund managers who may, among other duties, sort companies based, at least in part, on the types of businesses they operate.

Mutual funds and exchange-traded funds are two examples of broadly diversified portfolios that investors can typically purchase for a few thousand dollars or less. The two categories vary in a few key respects – one being that people can only buy or sell mutual funds at one daily closing price, while ETFs can trade at different prices throughout. the day.

Not a large group of funds

Although religious funds have been around for decades, they haven’t taken the investment world by storm. Funds are still relatively few in number, with relatively limited assets under management.

Investment researcher Morningstar doesn’t even divide religious funds into a separate category, instead grouping them into the larger ESG group — or environmental, social and governance grouping — which has about 600 funds.

Broader ESG portfolios are often more focused on avoiding carbon polluters, other environmental offenders, and companies involved in animal testing/abuse. Religious funds are more focused on lifestyle issues.

While Christian funds predominate among religious offerings, Islamic funds have also gained ground, such as the Amana mutual funds managed by Saturna Capital. Amana funds avoid companies engaged in alcohol, pornography, gambling and banking. They also avoid bonds and other conventional fixed-income securities, favoring dividend-paying 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 these types of companies as well as tobacco growers, arms manufacturers, some insurance companies and companies suspected of being linked to rights abuses. of man.

Different areas of intervention

Even under the same general religious banner, faith-based funds differ somewhat in their investment focus, particularly when selecting companies.

The Ave Maria family of funds, for example, favors companies that follow, or at least do not violate, anti-abortion Catholic values. The fund group said it was avoiding investments in several key areas – companies engaged in or supporting abortion, including Planned Parenthood, pornography, embryonic stem cell research and companies with reputable policies violate the sacrament of marriage.

Incidentally, advisers to the Ave Maria funds range from Detroit Archbishop Allen Vigneron to Fox News economist/anchor Larry Kudlow to Notre Dame football coaching legend Lou Holtz.

In contrast, the new FIS Biblically Responsible Risk Managed Fund, based in Scottsdale, lays out a longer list. This fund will not invest in companies suspected of being involved in abortion, contraception, embryonic stem cell research/human cloning, human rights violations, pornography, alcohol, tobacco, weapons or gambling.

“This fund is designed for the whole Christian community,” said director 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 believes are building a healthier society and acting as responsible corporate citizens.

Much is in the eyes of the beholder

But in many cases, portfolio managers don’t always have a clear decision on whether a company would make an acceptable faith-based investment – not just based on business operations, but also in terms of groups or causes. that a company supports with its philanthropic dollars or promotional efforts.

For example, some Christian portfolio managers will outright avoid companies that, for example, donate to gay rights groups or Planned Parenthood, Nelson said. His fund also avoids these companies on donations made in the past two years, but not longer than that.

It also depends on the context. For example, if a company like Verizon donated $5,000 to an objectionable nonprofit group, clearly reflecting employee correspondence, Nelson said he would not withdraw or avoid action on that basis. . “But some managers would,” he said.

The top stocks of the FIS Biblically Responsible Fund, which trades under the symbol “PRAY,” include Palo Alto Networks, Apple, Medtronic, Ecolab and Zimmer Biomet. The fund also owns shares in two Arizona-based companies – waste hauler Republic Services and GoDaddy, the technology service provider for small businesses.

Do religious funds sacrifice returns?

To the extent religious funds are not widely adopted, this could partly reflect a perception that by eliminating stocks or bonds in certain sectors, investors will sacrifice performance.

Still, a study by the Christian Investment Forum showed strong results.

The study tracked the returns of 35 Christian equity funds against other equity funds over the 15 years to December 2020. Christian funds earned 7.1% per year on average over this period, compared to 6.3% per year for other equity funds. The study also attributed a slight performance advantage to nine Christian bond funds over fixed income funds in general, 4.2% per year versus 3.8%.

Although based on a relatively small number of equity and especially bond funds, the results offer some support for the cause of religious investing, at least for people who share similar values.

The study “dispels some of the longstanding perceptions that the incorporation of religious criteria, in addition to traditional investment criteria, is correlated with underperformance,” wrote study author John Siverling. .

Contact the reporter at [email protected]

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