Mutual funds that practice faith-based investing may be no more exciting than a font of still holy water or the worn cover of a Koran. But over the years, these funds have proved that you don't have to sacrifice your spiritual values when it comes to investing.
Faith-based funds invest according to a set of religious principles. Even if you don't share these funds' religious views, you may want to consider investing in some of them because they have many of the attributes you'd ordinarily seek in a fund. Moreover, some analysts contend that investors who take a faith-based approach may reap bigger rewards than those who invest just for the money. "When you have stronger ties to an investment because it's also expressing your values, you're more likely to stick with it for the longer term," says
Be aware of a couple of negatives. In many cases, the religious guidelines nix certain industries, limiting a fund's ability to diversify. And although fees have come down, the funds' expense ratios regularly top category averages. The five funds described here do not levy sales loads and have delivered solid returns despite their investing constraints. That should appeal to any investor.
LKCM Aquinas Value (symbol AQEIX) follows the guidelines of the
That strategy has paid off for long-term investors. Over the past ten years, Aquinas Value has delivered an annualized return of 8.3%, edging Standard & Poor's 500-stock index by an average of 0.3 percentage point per year and placing the fund in the top 22% of its peers--funds that focus on large-company stocks with a blend of value and growth attributes (all returns are through
Ave Maria Rising Dividend (AVEDX) takes a slightly different approach to investing according to Catholic values. The fund avoids companies with ties to abortion or pornography (including hotels that offer X-rated films in guest rooms). "It is a zero-tolerance policy," says co-manager
Still, only about 150 of the 3,000 companies in the Russell 3000 index are disqualified on religious grounds. From there, Schwartz and co-manager
The strategy has helped smooth out market swings. In 2008, Rising Dividend dropped 22.8%, compared with the S&P's 37% plunge. And the fund, just under a decade old, is building a solid long-term record. It earned 17.2% annualized over the past five years, beating the S&P 500 by 0.4 percentage point per year and the average large-company blend fund by 1.8 points per year. Annual fees are a reasonable 0.93%.
Beneath the broad umbrella of Christian-oriented funds is Eventide Gilead (ETGLX). Managers Finny Kuruvilla and
Although the managers will invest in companies of any size, their fund tilts toward midsize firms (53% of assets). Barksdale says smaller firms can pass faith-based screens more easily. "Very large companies have their fingers in a lot of pies, one of which is usually something we don't want to own," he says.
Barksdale and Kuruvilla favor fast-growing businesses, often in biotech and technology.
So far, Gilead's performance has been divine. Over the past five years, the fund, which launched in 2008, earned 21.3% annualized, beating the S&P 500 by 4.5 percentage points per year and besting 98% of its peers (funds that invest in expanding midsize companies). One drawback: Annual fees are 1.64%.
A number of funds follow the principles of Islamic, or sharia, finance, including Amana Income (AMANX). Sharia bars investments in comÂpanies involved in alcohol, pork, gambling, pornography or tobacco. It also requires that investors avoid interest. One way manager
Then Kaiser and Klimo look around the world for companies that offer a dividend yield higher than the S&P's (currently 1.9%) and can increase their dividend over time. Today, about 85% of the fund's assets is in U.S. stocks, and 15% is in foreign stocks. In addition, industrial and health care firms account for about 40% of the portfolio. One top holding is Swiss drugmaker
The focus on low debt has allowed Income to hold up especially well during downturns. So has the fund's zero stake in banks. In 2008, during the financial crisis, Income fell only 23.5%. Annual fees are reasonable, at 1.19%.
For a fixed-income fund option, consider Ave Maria Bond (AVEFX). The fund applies the same Catholic principles of its stock-owning sibling to a mostly fixed-income portfolio. Bond currently has about 85% of its total assets in U.S. Treasury bonds and corporate bonds with strong credit ratings, as well as cash. (Treasuries are not subject to the religious sieve, but corporate bonds are.) The rest of the money is in dividend-paying stocks. That adds risk to the portfolio but has helped pad returns recently. Last year, for example, when interest rates rose after the Federal Reserve announced that it would begin winding down its bond-buying program, the Barclays U.S. Aggregate index fell 2.0% (bond prices fall as rates rise). But Ave Maria Bond gained 6.1%.
A stock market correction could drag down returns because of the fund's stock holdings. So could a spike in interest rates. To protect against the latter, Platte and co-manager
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Carolyn Bigda is a Contributing Writer at Kiplinger's Personal Finance.