Investors following Islamic and conservative Christian ideals have their faith to thank for avoiding the rocky performance of financial stocks over the past year. Islamic investing follows the laws of Sharia, or the laws of Islam. Generally speaking, whatever the Koran forbids a Muslim to do -- for example, drink alcohol, eat pork or gamble -- is also off limits to Islamic investors. Giving, taking and writing down a contract with interest is also prohibited, meaning no companies involved in financial services or mortgages or anything along those lines. Monim Salaam, director of Islamic investing and portfolio manager of the Amana Funds, says his income fund avoids interest-bearing instruments by instead going after stocks that pay high dividends. The approach has won his funds five-star ratings from Morningstar. Conservative Christian investors have avoided some of the investment houses, due to their financial backing of certain community groups supportive of homosexuals, says Jay Peroni, author of Faith Based Millionaire.
" Merrill Lynch, American Express ( AXP), Wells Fargo ( WFC) and Morgan Stanley ( MS) don't screen well because of their policies," he says. Peroni admits that some of the corporate policies are necessary to comply with the law. For instance, if the law requires companies to extend health care benefits to same-sex partners, Peroni won't hold it against them. But if a company goes beyond the basics that the law requires of it, he will count that as hostile to the pro-family agenda. He notes Aflac ( AFL) features many abortion foes among its top executives and its corporate policies like flexible schedules are very pro-family, making the insurer an attractive investment to like-minded Christians.
Peroni prefers companies that avoid cultural wars. For example, several financial companies are listed as corporate sponsors of the national gay and lesbian chamber of commerce. Wal-Mart ( WMT) supported the organization at one time, but no longer does after a Christian backlash. Both Salaam and Peroni believe their style of investing will benefit from the current level of distrust by investors. Scandals from the likes of money managers Bernie Madoff, Nicholas Cosmo and Arthur Nagel have all lost investors thousands of dollars and even life savings. Peroni assists his clients with incorporating their beliefs into their financial planning. Free sites like MoralMoney highlight potential advisors and provide free screening tools and subscription sites like IW Financial provide professionals with additional data collection, Peroni says. "I see more and more people now losing trust in individuals and corporations," Peroni says.