Faith-Based Fund Management: You’ve Got to Have Faith

by Liz O’Donnell (Boston)

While so many people have lost faith in Wall Street and the stock market during the past year, many others have renewed theirs. They are the faith-based investors—people investing based on criteria set by religious and social beliefs. Faith-based funds are considered a subset of socially responsible funds, or SRIs. According to Morningstar, faith-based offerings have been launched at a fairly rapid rate since 2000 and currently represent more than half the total of all SRI funds. This is significant when you consider that green funds, also part of the SRI category, are experiencing tremendous growth. In fact, the total of assets under management in faith-based funds has grown from about less than $500 million 11 years ago to more than $31 billion today, per Morningstar.

While many faith-based funds have similar investing criteria as socially responsible funds, like generally avoiding investments tied to alcohol, weapons and tobacco, some add a layer of religious filtering to their investment strategy as well. Take Financial Planning Services, a Washington, D.C. company that employs socially responsible investing, speaking to the Christian community about their financial lives and the difference between “man’s economy and God’s economy.”

Integrating Values in Investing

Deana Arnett, CFP, a senior planning consultant with the firm, says, “Socially responsible, faith-based investing is not a new concept. In fact, that very idea dates back at least as far as the 1800s when Quakers refused to do business with companies that profited from slavery or war. Currently, there are five denomination-specific funds that are trying to make their way into the market place. There will be—approval pending—a fund for Baptists, Catholics, Christians, Lutherans and Methodists. There are already funds that invest according to Mennonite, Islamic, Catholic, Hindu, and Buddhist values, among others. The list is growing.”

And, certainly, that seems to be true. There is The Amana Funds, which invests according to Islamic principles and require that investors avoid investments in liquor, pornography, gambling, and banks. Then there is the Christian Brothers Investment Services, Inc. (CBIS), which has approximately $3 billion in assets under management for more than 1,000 Catholic institutions worldwide, including educational institutions, health care organizations, dioceses, and religious institutes. MMA, is an Indiana-based firm rooted in the Anabaptist faith tradition that helps people and groups integrate their finances with faith values through its insurance and financial services. And the list goes on.

Arnett does point out that while faith-based investors seek more than just profit, they are in business to make money and there is clearly a demand this type of investing. “It’s about making sure they support the things they feel are important while discouraging those they think are detrimental to society,” she says.

So how are faith-based funds performing? “The least satisfying but most truthful answer is it all depends,” says Mark Regier, Director of Stewardship Investing, for MMA.

For starters, there are different kinds of faith-based funds (bond, equity, money market, etc.) and their performance varies. Secondly, and perhaps more importantly, people define performance differently.

“While I think the sophistication of faith-based funds, and SRI funds, is increasing,” says Regier, “will faith-based funds ever be the hottest thing out there? Likely not.”

That’s because faith-based funds tend to be smaller, often with higher expenses, and generally take a longer-term view of investing than the rest of Wall Street. That said, Regier does believe they can be competitive. As evidence, he points to the recent research that shows diversity leads to a stronger bottom-line. “In the faith community, we’ve been investing in diverse companies for decades—not because of proof but because we believe that’s the way the world should be.”

Women and Faith-Based Funds

Longer-term risk strategy and aligning personal values with corporate values—these are some of attributes typically associated with women. And in fact, both Regier and Arnett see opportunity for women in these funds.

Says Arnett, “The typical woman juggles many different roles: she’s the soccer mom, event planner, taxi driver, VP of business development–the list goes on and on. Faith-based investing allows an already busy woman to combine her efforts. She can make an impact on her community while still making good investment decisions for her family.”

Adds Regier, “In the SRI industry as a whole, we have seen some very successful women. They bring an innate sensitivity to looking a things slightly differently.”