Where the Heart Is: Within the Niche of Socially Responsible Investing, Faith-Based Funds Are Attracting a Growing Group of Investors Looking to Support-And Work For-Social Change
MacDonald, G. Jeffrey, Sojourners Magazine
In these early ears of the 21st century, investment dollars are hard at work doing a lot more than making money, They're supporting conservation measures, fueling humane labor practices, and rewarding companies for shunning groups with ties to abortion service providers and gay rights activists. From Wall Street to Hong Kong, they re doing all this and much more in the name of God.
Religious mutual funds have exploded over the past decade. Since 1997, assets under management in funds with an explicit faith-based mission have ballooned 35-fold from $500 million to $17.5 billion, according to data from fund tracker Morningstar. Such dramatic growth makes the sector one of the fastest growing in the financial services industry.
A couple of reasons account for the recent growth spurt. In some cases, strong financial returns are attracting new investors just as pollen draws bees. The Amana Income Fund, an Islamic fund that avoids gambling, tobacco, and meat-producing stocks, outperformed all 180 funds in its equity-income category between 2004 and 2007. Investors have piled in, and not always because they were seeking a clean conscience, according to Deputy Portfolio Manager Monem Salam.
Plus, many investors are apparently motivated by more than mammon. The past decade has given rise to new families of funds aimed not only at liberal Protestants but also politically conservative evangelicals and Catholics. Meanwhile, older funds with secular as well as Christian roots now get a hearing, at least sometimes, when they vie to impress their social visions upon corporate cultures. Socially responsible investing (SRI) has morphed from a quirky (and relatively small) niche in the 1980s to a $2 trillion mainstream industry today.
As the landscape has expanded, so also have opportunities for investors to couple nest eggs with personal passions for putting faith into action in highly specialized ways. But seizing these opportunities can be a daunting and confusing task. Would-be investors in this realm need to brave a thicket of similar-sounding investment products that often embrace wildly different goals and tactics. Finding a fit, however, is possible as long as the intrepid understand how to navigate the various traditions--both religious and activist--that drive this marketplace niche.
"You can't just lump all religious funds together because they have a pretty wide variety of standards that they use," says David Kathman, a Morningstar analyst who covers socially responsible investing. "To build a portfolio, they'll exclude certain things, or they'll favor certain other things."
History provides helpful context since SRI traces its roots to religious activism. At least as far back as 1758, Quakers in America refused on moral grounds to derive profits from the slave trade. In the 19th century, they shunned the firearms business with equal vigor. Methodists, too, have long appreciated the link between ethics and investing. Methodism founder John Wesley exhorted followers in a famous sermon to "gain all we can without hurting our neighbor." That ethic has inspired his spiritual descendants to shun investments in alcohol since the 19th century. In 1971, two Methodists launched Pax World Funds, which shunned weapons manufacturers as well as other vices and served as a harbinger of today's SRI mutual fund industry.
Tiffs tradition of using moral screens to sift investments reflects a dual quest among investors. They vie both to maintain their own moral purity and to support a parallel purity where they find it in the business world. In theological terms, these investors avoid sinners lest they be sullied by the process of financing sinful enterprise.
"There are sins today that stand out in our society," say the screening guidelines for the Timothy Plan, a conservative evangelically based family of funds, "which we feel as ... Christian investors we need to stay away from. …