Investing Gets Religion: 5 Worthy Funds
Values Based Mutual Funds Thriving
Socially Responsible Investing has its roots in applying religious values to investment dollars.
This has largely taken the form of avoiding so-called sin stocks, while otherwise investing in the overall market, taking out for example companies involved in sectors such as alcohol, gambling or pornography. A number of organizations are doing quite well servicing this market, and here are 5 leading players:
1) Ave Maria Mutual Funds - managed by Schwartz Investment Counsel of Plymouth, Michigan, has over $1.7 Billion in assets in their public facing mutual funds among their almost $2 Billion in assets under management in what the company calls the "Largest Family of Catholic Mutual Funds." The company "screens its investments first on financial criteria, then eliminates companies involved in the practice of abortion or whose policies are judged to be anti-family. What constitutes anti-family practices is based on moral judgments made by the company's Catholic Advisory Board." This narrow criteria has historically been the full scope of the screening this group performs, as opposed to some of the more common issues that socially responsible investors across environmental and social factors.
About half of their mutual fund assets are in the Ave Maria Rising Dividend Fund which is a 4 star fund per Morningstar. Since inception, the fund is up an average 9.68% versus the S&P 500's 8.28%, a nice result for investors involved. Fairly clearly a safe way of trying to match your values to your money, in this case those of the Roman Catholic
2) Azzad Funds - established in 1997, Azzad also seeks to invest towards religiously ethical criteria, in their case Islamic Finance or what they have taken to call Halal Investing, or a form of Shariah-based investing. As was written about recently for the Journal of Environmental Investing, Islamic Finance has its roots in shared value, but often is practiced as a form of negative screening.
Azzad's version involves seven steps within their "Halal" approach, including screening out companies involved with alcohol, tobacco or pork. As we profiled in our 2011 book Evolutions in Sustainable Investing, one of the leading Sustainable Investment mutual funds in the UK, the Jupiter Ecology Fund, long has had one of its largest holdings in organic pork producer Cranswick plc, and it remains the fund's third largest holding to this date. This is just to say that when you peel back the layers of the onion on sustainable investing strategies, as we saw in the 15 case studies we did for the Evolutions book, that the resulting approaches can be very different, especially if you are looking at strict screening out of a few sectors versus say a focus on climate change or human rights.
You end up with very different results as well so the key is watching out for performance in combination with the values or strategies you really want applied to your investments.
Azzad had $387 Million under management most recently per the SEC. Interestingly, the recently joined the ICCR, a coalition of religious investors with roughly $2 Trillion in assets who engage with corporates on issues of socially responsibility, showing that Azzad are reach out across religions. The iCCR are an important group who largely gave birth to the idea of engaging with companies both through direct dialogue and shareholder resolutions to seek changes on issues from executive pay to factory conditions in Bangladesh and well beyond.
Record numbers of shareholder resolutions are in progress this year, and you can see more on their activities here in this regard.
3) Everence Praxis - Even larger in this space than Ave Maria above is Everence Asset Management, even if their Praxis Mutual Fund line isn't quite as big.
Everence has seen their assets grow from $2.1 Billion in 2012 to over $2.5 Billion in 2014 for a not bad at all rise of approximately 20%. Everence oversees the largest relgious values focused US Mutual Fund featured at the list of socially responsible mutual funds of members of US SIF,that being the Praxis Intermediate Income, which manages $424 Million with a focus on fixed income. More on their screening habits can be found here. As with Azzad above, performance since inception after fees is a bit below benchmark, but the point is to match values with money and not give up too much on performance.
4) Timothy Plan - then we come to Timothy, who call themselves practitioners of "Biblically Responsible Investing." The fund aims to establish moral screens while aiming to preserve capital through matching or beating benchmarks and as we have seen through our research, negative screening at best meets market performance, so there is limited downside risk and similarly, likely to be little chance of significant outperformance available through such approaches. This fund was a recent investor in Jonathan Byrd's Indianapolis 500 efforts in 2015, an interesting choice perhaps.
Any investor focused on environmental issues and/or climate change won't find much relation to the approaches of the funds listed in this piece, and so it will be interesting to see how these funds react to the forthcoming Pope Francis encyclical on climate change.
5) Wespath Investment Management - last but not least is the management of the United Methodist Church's money as is performed by Wespath of Illinois. With over $21 Billion in assets, Wespath is arguably the largest pool of money in the US managed towards social responsibility outside of the large NY and California pension funds, making them an important body to watch.
They seek "competitive investment solutions aligned with the values of the church." Their approach involves seeking "lower costs, greater transparency and a concentrated, coordinated focus on investment management, through the application of the basic tenets of their Social Principles." Such was the vision of John Wesley who held, back in the 1700s, that business practices "should not cause harm to one’s neighbor".
One can see quickly that there are options for investors seeking to match their personal or religious values to their money. It will be very interesting to watch and see how this area evolves through 2015 as Pope Francis ratchets up his calls for action on climate.
The fund managers above are showing that there is limited downside to the approaches they have taken so far, and other managers such as Dana and Horizon are also emerging with similar approaches. How to match climate change concerns for Pope Francis's followers and their investment dollars will be very interesting indeed.