Sustainable Investing: When your faith guides your investing decisions, can you still beat the stock market?

Mutual Funds

I’m originally from Alabama, so a lot of folks I know have been watching intently in recent weeks as legislative bodies took their cues from religious faith in passing a new law on abortion. Some have been floored that a holy mantra could impact laws and the penal code, while others have cheered the developments as a sign of a new spiritual alignment.

You don’t have to relocate to Alabama, Georgia or Ohio to get your investment life in line with your personal faith, however. Believe it or not, there’s a fund for that.

Whether this segment of the Responsible Investment universe, generally referred to as Socially Responsible Investing or SRI, can beat the market is another matter.

Catholic-focused funds: There are a variety of Catholic-values funds available for individual investors. The $250 million Global X S&P 500 Catholic Values ETF

CATH, -0.49%

tracks the S&P 500

SPX, +0.62%

  with a faith-based overlay dictated by the Conference of Catholic Bishops, who have determined that Catholics should “never invest in businesses engaged in abortion, contraception, embryonic stem cell research, racial and gender discrimination, pornography, arms production or other morally wrong business activities.”

Likewise, the LKCM Aquinas Catholic Equity Fund

AQEIX, -0.79%

with a longer track record but only $50 million in assets under management, uses the same definition to exclude certain industries and businesses from its portfolio.

Ave Maria, which offers a variety of mutual funds from growth

AVEGX, -0.72%

to value

AVEMX, -0.80%

 to bonds

AVEFX, -0.09%

is likely the largest Catholic fund complex available to investors, with north of $1 billion under management. The firm relies on advice from the funds’ Catholic Advisory Board for investment screening advice, resulting in a “pro-life and pro-family approach to investing.”

Jewish-focused funds: Investors who wish to align with their Jewish faith don’t have the wealth of opportunities of their Catholic brethren. In fact, the one fund offering available, the Six Thirteen Core Equity Fund both launched and closed in 2018. The fund was intended to “invest alongside Jewish Values, promoting the development and growth of the Israeli economy, while recognizing the importance of tzedakah.” The fund was to donate 10% of its profits to charitable causes.

For now, investors who want to focus integrating their Jewish faith into portfolios can do so only through the AMIDEX35 Israel Mutual Fund

AMDAX, -0.67%

which invests in listed Israeli companies.

Shariah-compliant funds: Funds that are Shariah-compliant will avoid alcohol, tobacco, pork-related products, conventional financial services, weapons and defense as well as entertainment stocks like hotels, casinos, cinema, pornography and music. Investment options include The Imam Fund

IMANX, -1.22%

 and the Amana group of funds focusing on growth

AMAGX, -1.20%


AMANX, -0.88%

 and the developing world

AMDWX, -0.85%

There are also ETFs listed on the London Stock Exchange, including iShares MSCI World Islamic ETF

ISWD, -0.47%

 and the iShares MSCI USA Islamic ETF

ISUS, -0.90%

With the exception of Amana’s funds — its growth and income funds have assets in the $1 to $2 billion range — most Shariah-complaint funds remain fairly small, however. The Imam fund boasts $121.78 million in assets under management, while the iShares products have $115 million and $72 million, respectively.

Bible- and Christian-focused funds: For those that may not affiliate with any of the specific religions above, there are additional faith-based fund options. For example, the Timothy Plan family of funds, which has a variety of funds in broad investment categories including U.S. equity and fixed income, offer investors screens that exclude businesses with ties to abortion, gambling, pornography, tobacco, non-family entertainment, alcohol, and non-traditional marriage. Within this framework, the fund family offers everything from small-cap value

TPLNX, -0.83%

 to growth and income

TGIAX, -0.30%

to Israel Common Values

TPAIX, -0.72%

Likewise, Guidestone, with over $12 billion in assets under management, offers a range of fund options, including real assets

GREZX, -0.39%

 and target-date funds (such as GuideStone My Destination 202

GMWZX, -0.40%

and screens for abortion, human trafficking, gambling, tobacco, and alcohol.

Eventide (Gilead Fund

ETILX, -0.99%

 is its largest offering) and Crossmark Steward Funds (with a global equity income fund

SGISX, -0.59%

 and another focused on bonds

SEACX, -0.04%

 ) are additional variations on the theme. Among the ETF options is the Inspire Global Hope Large Cap ETF

BLES, -0.44%

Of course, the big question is what does performance look like if God is on supposedly your side?

One of the most common assertions made against Responsible Investments in general and SRI, which utilize negative screening as described above to exclude companies or sectors based on a value or belief system, is that, while it may be good for your conscience, it may not good for your wallet.

The evidence shows that increasingly isn’t the case for indexes and funds focused on Environmental, Social and Governance (ESG) issues, which generally do not eliminate potential investments wholesale. Instead ESG funds look for “best of breed” companies across sectors where strong ESG characteristics could enhance a firm’s sustainability or profitability.

Performance for faith-based funds, however, has been mixed. For example, the LKCM Aquinas Catholic Equity Fund

AQEIX, -0.79%

has underperformed its benchmark index and 90% of its peers, and Global X S&P 500 Catholic Values ETF

CATH, -0.49%

has underperformed its index since inception. Ave Maria’s growth and bond funds have consistently outperformed the S&P 500, while the value, world equity and rising dividend funds have underperformed since inception and produced mixed results in intervening years.

In 2019, Guidestone won Lipper’s award for Best Overall Small Fund Family based on risk adjusted returns, while the Inspire Global Large Cap ETF has underperformed the MSCI ACWI Large Cap Index since inception.

One relatively recent academic study on the performance of religious-themed investment funds found “that faith-based funds do not systematically underperform similar secular SRI or conventional funds. Faith-based funds tend to be small and share with similarly-sized conventional funds the challenge of attaining sufficient size to fully exploit economies of scale in investing.”

It’s certainly true that many of these funds are relatively new to the market, and it remains to be seen what long-term performance might look like. In fact, the study on faith-based fund performance was based on only 24 funds with less than 10-year histories.

Equally, restricting investment in and access to birth control, for example, may have macroeconomic repercussions that impact more than just a single fund. The World Economic Forum has estimated that “[f]or every dollar invested in reproductive health services, $2.20 is saved in pregnancy-related health-care costs. Moreover, the longer a woman waits to have children, the longer she can participate in the paid labor force, thereby boosting the economic health and prosperity of poor communities.”

But for those investors who do want Jesus (or the religious figure of their choice) to take the wheel of their investment portfolio, they generally won’t be short of options.

Meredith Jones is an alternative-investment consultant and author of “Women of The Street: Why Female Money Managers Generate Higher Returns (And How You Can Too)”. Follow her on Twitter @MJ_Meredith_J.

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