Religious Funds Struggle for Earthly Rewards
A small but growing number of mutual funds try to balance seemingly contradictory aims: promoting religious goals and making money. But just as the funds' philosophies differ, their performance ranges from impressive to anemic. In most cases, they don't offer anything close to financial salvation for investors.
Most of the funds are less than 10 years old, and almost all have less than $100 million in assets, a figure many regard as the benchmark for profitability. But the number of offerings has grown, along with the increasing segmentation of the mutual fund market.
Indeed, it's now possible to own not just a fund focused on small-cap value stocks but a fund oriented towards small-cap blend stocks that is in sync with the sensibilities of conservative Christians (the (TPLNX)Timothy Plan Small Cap Value fund).
Since 2000, at least 16 religion-oriented investing products have debuted, including institutional funds and indexes. They range from the (IMANX)Dow Jones Islamic Index to the Timothy Plan Aggressive Growth fund, which targets conservative Christians.
The Birth of Retail Religious FundsFor decades, many religious institutions have screened their pensions and endowments for companies they would define as undesirable, such as weapons manufacturers and alcohol companies. In the 1990s such religious institutions decided to offer the same options to their members amid a surge of retail interest in mutual funds. Religious funds also have ridden the coattails of increased awareness in socially responsible investing (which, in turn, received a promotional boost from earlier anti-apartheid campaigns). "This is a subsector that has benefited from the rise in other socially responsible funds," says Catherine Hickey, an analyst at Morningstar. "Over the last few years, people have gotten savvier about their available options as far as [fund] investments. They know you can invest with your values and conscience." Investors in religious funds tend to be "sensitized to the fact that as investors, they're really an owner of a company, and along with ownership privileges come responsibilities," says John Liechty, president of MMA Praxis funds, which caters to Mennonites and other Anabaptists. "As owners, they are responsible for management decisions, and when there's some conflict with their own faith, they have a responsibility to speak up." At least in some cases, religious funds appear to be attracting investors away from mainstream investments. When MMA Praxis rolled out its mutual funds back in 1994, some of the money inflow from retail investors had "probably been stuck away in CDs," says Liechty. More recently, the funds have received rollovers of retirement plans from major wirehouses and no-load mutual fund companies. The fund family now manages about $320 million in four mutual funds.
Selling the GospelFund companies with a spiritual bent pitch their products with varying degrees of religious ardor. MAA Praxis is relatively straightforward in its approach, telling investors it seeks to balance "a need for productive use of financial resources with a deep-seated concern for others." The tiny, $13 million (NOAHX)Noah fund, which appeals to conservative Christians, opts for a bolder approach. A message on its Web site announces, "Hallelujah, we believe the Noah Fund is a gift from God that could be your answer to Biblically-based investing." Amid sagging markets last spring, the president of the Noah fund invoked religious language in a letter appealing investors not to bail out of the fund. "'Stay the course' in Noah's ark is our strategy because: In God, we most certainly do trust," wrote William Van Alen Jr. The fund's five-year record lands it in the bottom 38% of large-cap growth funds.
Shunning Sin StocksTo some degree, different religious funds agree on stocks they won't own. Whether Catholic, Anabaptist, Muslim or Christian, they all largely avoid securities associated with alcohol, gambling, pornography and tobacco. MMA Praxis and Aquinas Funds (which targets Catholic investors) also shun military contractors.
Performance of Religious FundsA common criticism of religious funds is that their spiritual mission can get in the way of profit-making goals. Managers of the funds disagree, citing academic research that found little difference in performance between mainstream funds and those that focus on socially responsible investing. But in fact, performance varies widely among the funds that have been around for at least five years, all of which have different restrictions on the stocks they'll own. (AMAGX)Amana Growth, which is marketed to Islamic investors, is probably the best of the bunch. Its returns over the past five years average 14.32%, ranking it in the top 4% of large-cap funds. Still, its operating expenses of 1.80% are considerably higher than the average of 1.38% for all equity funds.
|Fund||Ticker||5-Year Total Return||% Rank in Category (1 is best, 100 is worst)||Fund Category||Operating Expenses||Asset Size
|Amana Mutual Funds Trust Growth||AMAGX||14.32%||4%||Large growth||1.80%||$26|
|Aquinas Equity Growth||AQEGX||9.66||30||Large growth||1.41||54|
|Noah Fund||NOAHX||6.43||62||Large growth||2.20||13|
|Lutheran Brotherhood||LUBRX||6.83||74||Large blend||0.84 plus 4.0% sales charge||976|
|MMA Praxis Growth||MMPGX||6.56||77||Large blend||1.75 plus 4.0% deferred sales charge||132|
|Timothy Plan Small-Cap Value||TPLNX||6.10||83||Small blend||1.60 plus 5.50% sales charge||17|
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