Helen Daly, a psychologist in Vermont, had always tried to make sure her decisions on investments reflected her moral and spiritual values. But the connection between her faith and her investing took on a new intensity five years ago after a visit to Mexico, where she lived in a slum with former factory workers whose jobs had been moved to China.
"I was very shaken up," she says.
So she began searching for a way to invest that went beyond social responsibility to what she calls "gospel-based investing," a philosophy that puts helping other people first and returns second.
Investing in what 'God loves'
It's not that Daly doesn't want decent returns on her investments.
"Part of my faith is that the question of 'How much is enough' is important," she explains. "I have more than enough, so getting the most return from my assets is not my primary value."
It took her a long time to find an investment adviser who understands and sympathizes with her goals. She wound up with an adviser at Portfolio 21, a money manager and mutual fund company that specializes in environmentally and socially responsible investing. Eventually, she split her money among the stocks of socially responsible companies, community investments and municipal bonds issued for infrastructure and other community needs.
The many people who share Daly's principles have fostered strong growth among religious funds. David Kathman, a Morningstar analyst who covers the area, says religious funds are the fastest-growing subset of socially responsible funds. Like other socially responsible funds, religious funds screen their investments based on social principles. But with religious funds, those social principles have a theological base.
Nuns investing $50 million (or more)
There are almost as many types of religious funds as there are types of religious believers. Do you believe God forbids gay marriage? The Ave Maria funds won't invest in any company that gives benefits to employees' unmarried partners. Do you believe God demands justice for the poor and underprivileged? The Presbyterian Foundation Group's New Covenant funds use their power as shareholders to influence the way companies treat their employees and interact with their communities.
Many religious fund companies spring directly from religious organizations. GuideStone Funds, for instance, started life as the Southern Baptist Convention's employee retirement plan. The Mennonite Church USA sponsors the MMA Praxis funds, which
share that church's pacifist principles. But others, like the Ave Maria funds and the evangelical Christian Timothy funds, were founded by individuals who saw a need in the marketplace. The Amana family of Islamic funds was set up by entrepreneurs who wanted to give the growing U.S. Muslim population a little extra peace of mind.
How well do religious funds perform? It varies.
Chart: Does investing in your faith pay off?
But not, Morningstar's Kathman says, because of the funds' religious bias. "There's no really obvious way that religious funds do either better or worse," he says. The factors with the biggest effects on the return of any fund, religious or not, are the fees it charges and the skill of its managers, he explains, not its social screens.
For proof that rigid investing principles don't necessarily affect performance, look at the Islam-driven Amana funds, which have perhaps the strictest limits of any of the religious funds -- and by far the most stellar performance. As of mid-August, the Amana Growth Fund (AMAGX) ranked in Morningstar's top 5% of large growth funds, religious or not, and topped that category in 2004 and 2005.
Islam prohibits the paying or receiving of interest. Obviously, then, the Amana funds can't invest in financial companies. Taken literally, the prohibition would prevent Islamic funds from investing in almost any company, since almost every company in the world invests and borrows money, thereby both paying and receiving interest.
Rules for Muslim investors
Faced with this conundrum, the Audit and Accounting Organization for Islamic Financial Institutions decreed almost a decade ago that Islamic funds could invest in companies with limited debt -- roughly 33% of their market capitalization. From an investor's point of view, that's a pretty good rule, says Monem Salam, the director of Islamic investing at Saturna Capital, which manages the Amana funds.
"It forces us to investigate a company's debt on and off the balance sheet," he says, "and saved us from the implosion of Enron."
Avoiding financial companies hasn't hurt the funds' recent performance. But the Amana Growth Fund's real secret, Kathman says, is simple: Nicholas Kaiser, its manager, is a very, very good stock picker.
For most investors, even religious ones, return is the paramount issue. But many religious funds offer another benefit: the knowledge that your money is helping to change the way the corporate world operates. Churches and other religious investors have, over the past 30 years or so, proved to be among the most successful advocates for corporate change. For
example, in 2006, Sister Patricia Daly -- representing Catholic institutional investors in New York, Connecticut and New Jersey -- led a coalition of shareholders that forced GE to disclose that the company had spent hundreds of millions to delay cleanup of the Hudson River and other PCB spill sites. (Daly is no relation to investor Helen Daly.)
The Interfaith Center for Corporate Responsibility, a coalition of liberal religious investors, this year filed more than 300 proxy resolutions on issues such as global warming, political contributions, sexual discrimination, labor standards and executive pay. And that's just the tip of the iceberg, says Laura Berry, the executive director. The center's real goal is not to win proxy votes but to develop a dialogue with top corporate officials.
Religion helps in that effort -- partly, Berry says, because religious investors have "a sort of transcendent moral authority." But there are other reasons, she says. Religious investors can often get in to see CEOs who won't talk to other interest groups. Berry believes that company executives see religious investors as more trustworthy, courteous and reasonable.
"They have a strong point of view, but they tend to be respectful and not strident," Berry says.
And when the active investor sitting across the table is a Roman Catholic nun, there's sometimes another factor at work, on occasion. More than a few corporate CEOs went to Catholic elementary schools, Berry says. They were taught in school that when Sister talks, you listen.
Tips: Where to find help
Produced by Peggy Collins / Graphics by Joe Farro
Published Sept. 4, 2008
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