Religion tends to take a back seat to other subjects on Wall Street. Still, there are a number of mutual funds that can help investors put their money where their values are.
profiles three funds that have used religious principles to generate righteous returns: the
Ave Maria Catholic Values fund; the
Amana Growth fund, which follows certain Islamic tenets; and the
Blue & White
fund, for investing in the Jewish state of Israel.
The funds have performed well, outperforming key benchmarks in recent years. Ave Maria is the biggest of the bunch, boasting more than $200 million in assets, but the others are growing as well. Perhaps most important, all three funds are open to investors of all faiths.
Four years ago, Cincinnati-based money manager George Schwartz was running a traditional small-cap fund when some clients approached him with an idea. Schwartz, who had enjoyed great success running his
Schwartz Value fund, found himself chatting with
founder Tom Monaghan and former Major League Baseball Commissioner Bowie Kuhn about a fund that would hew to Catholic principles.
Specifically, Monaghan and Kuhn wanted to create a fund that would shun the shares of companies involved in abortion, which the Catholic Church outlaws. That meant avoiding some hospital, drug and insurance companies, for starters. Schwartz, who is Catholic, accepted the challenge and the fund was born.
The fund has since broadened its scope beyond abortion to focus broadly on actions or policies that run counter to Catholic doctrine. "Our funds take a pro-family approach to investing, with a proprietary screening process that examines corporate compliance with Catholic teaching," Ave Maria fund says on its
Web site. Other no-nos include pornography and "policies that undermine the sacrament of marriage." Screening is overseen in part by the fund's Catholic Advisory Board, whose members include Kuhn, Monaghan and the Archbishop of Detroit.
On the financial side, the fund has grown to more than $200 million, a rare instance of a theme-based fund cracking the $100 million mark. The fund was launched in May 2001 with $15 million in its coffers.
Schwartz's performance has lived up to the faith of the fund's founders. The Ave Maria Catholic Values fund is up 9.96% this year, putting it 8.25 percentage points ahead of the
. In 2003 the fund returned 35.6%, outperforming the index by 6.9 percentage points.
When it comes to selecting stocks, Schwartz says the fund's religious screening process gets in the way less than people imagine.
"Of the entire Russell 3000, there are only 400 names which we steer away from," says Schwartz. "And of that 400 there are probably only a handful that we would invest in anyway."
Of those 2,600 stocks in his universe, Schwartz says he likes companies with low debt, cheap valuations and growing revenue. He also looks for turnaround plays and has been successful with story-stocks like
And while the fund markets itself as an investment vehicle for Catholics, Schwartz says he has learned that fund returns are nondenominational.
"At the last Morningstar conference we had a pair of female Jewish financial advisers stop by our booth," says Schwartz. "They told us they did not care if the fund centered on Catholic values. They were recommending it to their clients because of its performance."
Like the Ave Maria fund, the Amana Growth fund avoids investing in certain kinds of companies. Following Islamic principles, the fund won't touch businesses involved in liquor, pornography, gambling or lending (Islamic law prohibits "riba," or interest).
But the Amana Growth fund hasn't let those strictures hurt its performance. The $34 million fund is up 4.79% this year, vs. 3.08% for the S&P 500. And over the last three and five years, the fund has outperformed the index by 1.7 and 5.8 points, respectively.
Nicholas Kaiser, the fund's manager since 1994, has achieved these healthy rates of return by investing in stocks with good earnings growth and low P/E multiples relative to their industry. Even so, the companies he's been watching have not by any means been cheap.
His top five holdings include
Aside from Kaiser's stock-picking prowess, tax-conscious investors also benefit from the fund's low turnover of 13%, which stems from the Muslim belief that excessive trading is a form of gambling.
One area where the fund might be slightly disadvantaged is its inability under Islamic law to earn interest on its cash stake. So while Kaiser has the ability to raise cash, investors might prefer the fund to be fully invested, as it is now.
When it comes to matters of Islamic law, or Shari'ah, Kaiser -- who is not Muslim -- relies on Monem Salam, the fund's director of Islamic investing. Salam also helps market the fund to Muslim communities nationwide through presentations at local Mosques and conferences.
"As the Muslim community ages, people become more religious," says Salam. "The fund gives them a chance to stick to their Islamic principles and earn a good return at the same time."
Adds Salam, "We do have non-Muslim shareholders who are happy with the fund's performance and have been with us for a while."
Blue & White
It doesn't seem kosher for a mutual fund that is up 23% since its introduction in February 2003 to be giving away free shares, but that is exactly what the Blue & White fund is doing.
In March, the fund, which invests solely in Israeli-based companies, unveiled a first-of-its-kind marketing plan. Blue & White pledged to present every American boy and girl with a certificate worth $18 in fund shares at the time of their first communion, confirmation or bar/bat mitzvah. The certificate is a gift -- and an incentive to invest in Israel.
Why $18? Because the word for "life" in Hebrew is "chai," and the two Hebrew letters that make up the word have the numerical equivalent of 18 when added together. Many people give money in multiples of $18 as presents to someone celebrating a birth, a bar or bat mitzvah, or a wedding.
And why fund shares as opposed to Israeli bonds, the traditional vehicle for American investors to demonstrate their financial support for the Jewish state?
"Israel doesn't need charity as much as it needs investment, as investment creates long-term solutions," says Michael Poutre, president and co-founder of the fund. "And youth, by participating in this program, can start supporting Israel and themselves at a very early age. They can wake up every day and check their stock and see how Israel's economy and their investment are doing."
Despite the tiny country's geopolitical challenges, Israel's tech and biotech-based economy has done quite nicely over the past two decades. Israel's exports have grown nearly 700% to $29 billion, and the country boasts more engineers per capita than any other place on earth. In education, Israel ranks just behind the Netherlands with 20% of the college-educated population.
Israel's investment in education has paid off as the country has spawned such tech heavyweights as
Check Point Software Technologies
, which comprise 7.7% and 7% of the portfolio, respectively.
While the fund can invest up to 100% of its assets in Israeli companies traded in the U.S., it can also invest up to 25% of its assets in companies on the Tel Aviv Stock Exchange, including the top 25 firms on the exchange.
Although the fund is offering mitzvahs (good deeds) for nothing and its shares for free, the small size of the fund forces it to maintain a higher-than-average expense ratio of just below 3% for class A shares. The $4.4 million fund does not yet have a ticker symbol, but investors can find daily prices for the fund on
"Obviously there is a religious element to the fund," says Poutre, "but the bottom line is that the Blue & White fund is in business to make money for its shareholders."