Religious Investment Funds: Doves in a Bear Market?

Socially Responsible Investing

“With the Lord’s money I purchased ownership shares in companies profiting from porn and abortion,” said Naber. Later, she not only sold the mutual fund, but also found an ethical investment that better suited her own values.

According to a recent investor survey, a growing number of shareholders, like Naber, have been putting their money where their faith is — in religious-related investments. Managers of such funds say that investing has continued even while stocks have lost value.

The investor survey, done by Thomson Wealth Management for Mennonite Mutual Aid, showed that religious-related mutual funds have grown from 34 funds in 1999 to 75 funds today. In addition, the research also showed individuals are investing money in such funds at a rate almost double invested in the remainder of the mutual fund industry.

Religious funds — a relatively recent creation — shadow Socially Responsible Investing (SRI), which has become popular over the past 30 years. Whereas SRI funds traditionally screen against companies profiting from alcohol, gambling, or tobacco, religious-related investments go a step further. They include funds such as the Amana Funds, an Islamic fund that shuns liquor, pornography, gambling, and investments that pay interest, and the Timothy Fund, one of the first Biblically-based religious funds.

According to the Kennewick, Wash.-based Carlisle Social Investments, more than 70 percent of SRI portfolios in the U.S. in 2001 were not in compliance with the investment guidelines adopted by the United States Conference of Catholic Bishops due to their failure to employ abortion and/or birth control screens.

Therefore, a handful of Catholic investment funds have entered the horizon over the past decade. They include: Ave Maria Catholic Values Fund, Aquinas Funds, Inc., The Catholic Funds, the Catholic Values Investment Trust (CVIT), the Carlisle Catholic Indexes and Christian Brothers Investment Services, which are open only to Catholic institutions.

Naber’s run-in with unscreened funds led her to explore the trend. A Harvard graduate in economics and religion, her senior thesis examined the effects of screens on Catholic investing and led her to found FaithfulSteward.org, which provides resources on ethical investing. She now works as a financial advisor for Merrill Lynch in Beverly Hills.

Studies by Naber and the Social Investment Forum demonstrate there appears to be little difference in returns between religious or socially conscious funds as compared with others. Naber’s research on Catholic principles from 1991-1995 was published in the Journal of Investing. She concluded that religiously screened portfolios did not yield a significantly different return once adjustments were made for market risk, such as taking into consideration the high volatility and risk found in traditional “sin” portfolios that contain pharmaceutical or military companies.

Naber chose to research Catholic investments because “the Catholic Church has the most well thought out guidelines on the subject.” Naber is referring to the National Council of Catholic Bishops/United States Catholic Conference 1991 “Socially Responsible Investment Guidelines.”

“The U.S. bishops’ guidelines outlined the procedures that they intended to follow regarding the collective investments of the bishops’ conference. It includes a hodgepodge of specific things they did not want to invest in, such as abortifacients, tobacco, or companies that did not have enough women represented on their boards,” explained Dr. Robert Kennedy, Catholic studies and management professor at the University of St. Thomas in St. Paul, Minn.

“The bishops are clear in their direction that in considering investments one must consider both the financial and the social aspect. It is clear that the ethical dimension is important and requires attention,” added Brother Michael W. O’Hern, CEO for Christian Brothers Investment Services, the country’s first Catholic investment company and one of the largest with nearly $3 billion in institutional assets.

Brother O’Hern said that Christian Brothers use the Catholic Conference of Bishops’ guidelines and their document “Economic Justice for All” to help make investment decisions.

However, aside from those guidelines, when it comes to Church teaching on the issue of investing, the guidance is sparse. Very few Church documents speak directly of investments. The function of the Church and Magisterium is to remind us of moral principles. It is the task of the laity to imply those moral principles in specific professions.

“Therefore, Catholic ethicists have not devoted much attention to the concrete problems of investing with a conscience since so much of investing quickly becomes case-specific. ”There is a need to look at individual companies in order to make judgments about them,” Kennedy said.

Ethical Concerns

Looking at individual companies is what most Catholic investment companies attempt to do. By most accounts, the Catholic-related funds tend to follow the NCCB/USCC guidelines. Whereas Christian and socially responsible funds traditionally avoid stocks associated with alcohol, tobacco, and gambling, Catholic funds tend to avoid corporations that support abortion, pornography, and nuclear weapons. Still, the funds all take a different approach to the screens they employ.

Catholic Values Investment Trust, one of the first Catholic funds available to individuals started in 1997, screens out companies related to abortion and birth control, those that belittle human dignity, and those that produce weapons of mass destruction. “We work closely with our board to screen investments that adhere to the Church and its teachings,” said executive director, Walter R. Miller.

The Ave Maria Catholic Values Fund employs additional screens — choosing not to invest in companies that support the American Civil Liberties Union and corporations that offer benefits for same-sex couples. This prevents them from investing in corporations such as Intel and Microsoft.

“Because in the eyes of the church marriage is a unique relationship — and is, in fact, a sacrament — we would choose not to invest in companies whose policies put non-marital relationships on a status with marital relationships,” former fund manager Greg Watkins said shortly after the fund was developed. “This means domestic-partner benefits. If a company offers that, we would choose to invest in a different company.”

“That opposes the law in many states,” suggested Miller, whose funds do not take this issue into consideration. “Thirty-nine states have laws mandating same-sex benefits.”

Christian Brothers Investment Services and the Dallas-based Aquinas Funds take a different approach. In addition to screening, they take a proactive approach. “We will invest in companies with the intent of changing corporate policy,” said Aquinas Funds president, Frank Rauscher. As an example, he cites Aquinas’ success in getting companies such as Whirlpool, Harley-Davidson, and Dayton Hudson to stop funding Planned Parenthood.

While admirable to some, others question Rauscher’s tactic. “It’s arguable whether it works or not. Some question whether an investor is materially cooperating with, and profiting from, such companies while you own them,” said James Kelly, financial advisor with the Front Royal, Va.-based Paladin Financial.

“We will not invest in intrinsically evil companies such as Playboy. With other companies, if we don’t feel we are making progress with a company, we divest and blacklist them,” Rauscher offered.

“If you own stock in a company you’re financing it,” said Thomas Strobhar, president of Pro Vita Advisors, a non-profit that does investment research to expose corporate support of abortion, pornography, and religious bigotry. Strobhar founded the organization in 1989.

Both CVIT and Ave Maria use research by Pro Vita Advisors to help screen their investments.

“I used to live across the street from an abortion clinic,” said Strobhar. His organization has influenced the investment practices of hundreds of religious institutions and has filed a variety of shareholder resolutions on controversial topics. In fact, in the mid-1990s, he was the first to file a shareholder resolution on contraceptives with Bristol Myers Squibb. While the company did not adopt the resolution, noted Strobhar, they did decide to sell their contraceptive business a couple of years later.

Profitable?

In addition to ethics, the real question for investors tends to be whether religious-based investments offer a return, especially during times such as these. The statistics tend to show that they do.

“The good news for Catholic institutions and individuals is that they can do what the bishops called for without sacrificing returns. We know from our own experience that it is not necessary to suffer below-average returns just because 300 or so companies have been removed from a universe of 3000 companies,” said Jeffrey Petersen, president of Carlisle Social Investments.

“We’ve had more people buying shares than redeeming them,” said Rauscher. “Even though market evaluations are down, we’ve had a net influx of money.”

Aquinas’ marketing officer, Anna Hall, added their funds have been doing better, overall than the market. “While they are down, they aren’t as down as others,” said Hall.

Miller agreed. “Our funds are performing exactly even with the market. We don’t see people pulling money out. In fact, it’s a great time to buy.”

Tim Drake is features correspondent with the National Catholic Register and editor of Saints of the Jubilee available at 1stbooks.com. He resides in St. Cloud, Minnesota. This article originally appeared in the National Catholic Register.

Tim Drake

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Tim Drake is an award-winning journalist, the author of six books on religion and culture, and a former radio host. Widely published, and a long-time contributor to the National Catholic Register, he serves as Senior Editor/Director of News Operations for the Cardinal Newman Society.

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