Social, religious funds may fit some resolutions
Published: Wednesday, January 3, 2007 at 6:01 a.m.
Last Modified: Tuesday, January 2, 2007 at 11:08 p.m.
NEW YORK — Wall Street presumably isn't a place where those hoping to mend their ways in the new year might turn for inspiration. But some investors looking to better align their social or religious convictions with their investments have found sizable returns.
Mutual funds that incorporate such principles range from those that invest with an eye toward helping the environment to those that avoid companies that extend health benefits to unwed couples. And while some investors are predisposed to invest in funds whose agendas match their own, even investors who don't necessarily share a fund's beliefs can still find value.
Consider the Amana Funds, which invest according to Islamic principles. The funds avoid companies that sell or promote liquor, pornography, gambling and pork products. In adhering to Islamic law, the funds also exclude companies such as brokerages that make a business of charging or receiving interest or companies that carry excessive debt.
While the restrictions could appear limiting, the funds have flourished. The Amana Trust Income fund, a large-capitalization value fund, saw a return of about 19.3 percent in 2006. The fund, which has assets of about $111 million, carries a five-star rating from Morningstar Inc., which evaluates funds.
Nicholas Kaiser runs the Amana funds, which like many other funds that incorporate social or religious principles, seek outside advice on what types of investments aren't permissible. The funds follow broad recommendations by a group of experts that interprets Islamic law in North America.
While Kaiser notes, for example, that the prohibition on investments within the financial sector could make it harder on the Amana Funds in years when Wall Street favors such stocks, the discipline imposed by the fund has also proven fortuitous.
The funds had invested in Enron Corp. "When the debt numbers got to be such (as they were), we sold it," Kaiser said, noting the sale allowed the fund to sidestep losses from the energy company's implosion.
Another group of funds that apply religion to investing are the Ave Maria Mutual Funds, which follow Catholic principles and prohibit investments in companies that draw profits from pornography, abortion or those that donate to Planned Parenthood. The parameter that trips up most companies, however, is one requiring that they don't offer benefits to unmarried couples.
George Schwartz, who oversees the funds, said an ample number of companies manage to merit consideration under the fund's principles.
"I'm not a theologian. I'm a portfolio manager," said Schwartz, adding the restrictions still allow him to assemble a robust portfolio. "We've got to have the investment performance."
The Ave Maria Catholic Values Fund, with assets of about $258 million and a four-star Morningstar rating, posted a return of about 14.2 percent last year.
While investors ordinarily rely on the cold calculus of a fund's returns when evaluating where to put their money, others supportive of a fund's social bent are likely to be more patient should returns lag, observers say.
"There's a thirst among some Catholics that truly have found a home among these funds. It's almost like they don't even care about our investment performance," Schwartz said. He said the approach isn't swayed too heavily by dogma, however, and noted that the Ave Maria funds don't lobby companies for change but look for those that are the best investment under the Ave Maria parameters.
Jeff Tjornehoj, an analyst with fund-tracker Lipper Inc., warns that good deeds don't necessarily make good investments. "The biggest thing is to treat these as if you're buying any other funds. Consider the performance and risk."
He notes that some funds that employ a social or religious filter can be expensive to run given the level of screening many investments require.
Tjornehoj offered his own New Year's wish for investors considering a socially or religiously minded fund: "Read the prospectus carefully. It requires more attention than your typical investment."
He contends investors can in many cases advance a cause or belief by investing where returns are greatest, regardless of the type of investments.
"If you found a low-cost index fund that included a sin stock then sometimes it pays to be in that kind of fund to do well and then donate to a cause you like," Tjornehoj said.
One fund whose patron saint would more likely be Gordon Gekko than a social or religious champion is the Vice Fund, which invests in alcohol, gaming, tobacco and defense.
"I call them bulletproof in terms of their sensitivity to the economic cycle," said Charles Norton, who runs the fund. "They're steady performers in good times and bad."
"We're not advocates or promoters of these sectors," Norton said, noting that doing well by investors is the most important purpose of a fund. The mid-cap blend fund, which Morningstar gives four stars, has assets of about $75 million and showed a return of about 23.2 percent last year.
"We just invest in these sectors by design because we think they offer such true investment merit that tends to be overlooked."
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