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Your beliefs and your dollar dont mix
Sure, you can invest in funds that cater to your conscience. But you wont make much money, unless youre a Muslim.
By Timothy Middleton
If you want to rile Arthur D. Ally, accuse him of socially responsible investing.
That is the opposite end of the spectrum from us, says the president of Timothy Plan, a small family of mutual funds targeted at evangelical Christians. We are morally responsible investors.
Indeed, the religious wing of the non-economic investor movement could not be more unlike its secular, political cousin. Blue-state investors, the kind who call themselves progressive, are the mainstream of socially responsible investing. Religious investors are their red-state opposite.
Domini Social Equity (DSEFX) spurns defense stocks. Timothy Plan Patriot Fund (TPFAX) ostentatiously does not.
We dont have any social screens, says Greg Heilman, co-manager of Ave Maria Catholic Values (AVEMX), We have four moral screens. They eliminate two darlings of socially responsible investors, health care and technology -- the former because of its association with abortion and the latter for promoting benefits for out-of-wedlock couples.
Screening for priorities
Congregants of every Western religion can find a congenial mutual fund whose managers screen their holdings for compliance with their faiths priorities. Just dont expect them to make you money.
For Jews, the right fund can be virtually any fund: None targets them directly. Im not Jewish, but Im in their camp. Investing is about making money, not salving the soul.
But if you feel differently, you have lots of choices.
Muslims have the best shot among social and religious investors to do well as they do good. Amana Mutual Funds Trust Growth Fund (AMAGX) is an outstanding investment portfolio run along Islamic lines.
It may benefit from the fact that Islam forbids lending at interest. As a practical matter, it is impossible to observe this maxim under capitalism. The fund reaches an accommodation by eschewing companies that borrow heavily.
That is usually a good idea. This fund ranks among the top 1% of financially similar funds over the last three years, with annualized returns of 28.6% as of Jan. 31.
| Religious funds | | Fund | Prohibited | Wal-Mart | Grade | | Amana Mutual Funds Trust Growth Fund (AMAGX) (Muslim) | Banks, alcohol, pornography, gaming | Out | A | | Ave Maria Catholic Values (AVEMX) | Abortion, Planned Parenthood, pornography, partner benefits | Out | C | | MMA Praxis Core Stock A (MMPAX) (Mennonite) | Defense, including U.S. Treasury bonds; alcohol, gaming, tobacco; some limits tied to environmental practices and nuclear power | In | D* | | New Covenant Growth (NCGFX) (Presbyterian) | Alcohol, gaming, tobacco, firearms; makers of land mines and nuclear and biological weapons | In | C | | Timothy Plan Conservative Growth (TCGAX) (Evangelical Christian) | Abortion, alcohol, pornography, tobacco, gaming, homosexual agenda | Out | D |
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Notes: Performance grade: A = 5 stars by Morningstar, B = 4, C = 3, D = 2, F = 1. Data as of 1/31/2006. *Morningstar managers-of-the-year Chris Davis and Ken Feinberg, of Davis Selected Advisers, took over this portfolio in January 2006. Sources: MSN Money, Morningstar Inc.
The Wal-Mart litmus test
Ave Maria and Timothy Plan Conservative Growth (TCGAX) share an aversion to abortion and pornography. Neither will own stock in Wal-Mart Stores (WMT, news, msgs) because they object to Cosmopolitan magazine, which Wal-Mart stocks and displays. (Neither will Amana, for the same reason.)
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Both funds also shun investments in companies that extend benefits to unmarried couples, but for slightly different reasons. Catholicism regards marriage as a sacrament, so the fund regards out-of-wedlock cohabitation as objectionable. Timothy Plan will not own companies that are promoting the homosexual agenda, Ally says.
Catholics dont regard smoking, drinking and gambling as sinful, so Ave Maria doesnt avoid them. Evangelical Christians do, and Timothy Plan does.
Wal-Mart is the hot-button issue du jour among investors who call themselves ethical. Some investors dont like its anti-unionism (although, strangely, theyve never raised a peep against anti-union Target Corp. (TGT, news, msgs)).
But both MMA Praxis Core Stock A (MMPAX) and New Covenant Growth (NCGFX) are allowed to own it, and both do so -- gingerly.
That by far is the most controversial holding in our portfolio right now, says John L. Liechty, president of MMA Praxis. He says the fund is using its influence as a shareholder to agitate for more labor-friendly policies.
New Covenant, which is sponsored by the Presbyterian Church USA Foundation, is also a Wal-Mart investor. Bob Leech, foundation president, says: Helen Walton, the widow of Sam, is a former chair of this foundation and a significant donor to the church. The only issue at Wal-Mart, the labor issue, we have not perceived to be an issue that we are going to act on.
Investing and religion dont mix
Amana aside, all of these funds are mediocre performers, at best. That could be reversed at MMA Praxis, because last years Morningstar equity-fund managers-of-the-year, Christopher Davis and Kenneth Feinberg, were hired in January to take over the Core Stock fund.
But its unlikely that dynamic duo will be able to achieve the kind of greatness they enjoy at their economic-inspired mutual funds, Davis New York Venture A (NYVTX) and Selected American Shares S (SLASX).
The idea that screening companies based on non-economic criteria can actually benefit performance -- the central claim of socially responsible investing -- is baloney. Domini Social Equity, the mother church of progressive investors, did worse than 76% of similar rivals over the last three years, and 85% of them in the last 12 months. It has performed among the top 25% of similar funds in only three of the 15 years it has been in existence.
I like to invest alongside highly ethical people, and I do. Most mutual fund managers are. But my mother always said polite people dont discuss politics or religion, and my managers dont.
At the time of publication Timothy Middleton didnt own any securities mentioned in this article.
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