Investors bet on their faith
More and more funds help individuals align their investments with their religious beliefs -- and post surprisingly solid returns.
By Grace Wong, staff writer

NEW YORK ( - Are investors losing their religion? No way. Just take a look at the number of dollars flowing into faith-based mutual funds.

According to fund research firm Morningstar, the value of assets held by faith-based funds has jumped nearly seven-fold since 2000 to $15.9 billion this year.

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"In general, screened investing -- both religious and secular -- is getting more acceptable as investors have a greater desire to make investments that don't conflict with their core values," Morningstar analyst Bill Rocco said.

Religious funds use factors known as screens to cater to clients dedicated to their faith, but the funds range widely in their holdings and investment strategies.

Islamic funds generally avoid businesses involved with pork processing and investments that bear interest, while some Christian funds won't invest in companies that promote abortion or non-married lifestyles.

Faith-based investing has sprung up largely as an offshoot of socially responsible investing, a trend that gained popularity in the 1980s with the launch of funds that blended personal and social values with investment decisions.

"A growing number of investors want to carry their values over into investing and they're looking for funds that screen on certain issues," said Todd Larsen, spokesman for the Social Investment Forum, an organization that promotes socially responsible investing.

We're in the money

Another driver behind the trend? Investors are finding that they don't have to sacrifice returns to invest with religious values in mind. Some faith-based funds have consistently outperformed the broader market, and performance between screened and unscreened funds is competitive, Larsen said.

A list of "religious" mutual funds compiled by Morningstar averaged a 1-year return of 9.7 percent through the end of February, outpacing the S&P's 6.5 percent during the same period. (Click here to see a gallery of some of these funds.)

The values closely watched by many religious funds overlap with good corporate governance principles, which may be behind their solid returns.

Several of the funds are on the lookout for corporate misbehavior, monitoring executive bonuses and treatment of employees, according to W. Thomas Curtis, a certified financial planner in Gaithersburg, Md. "In these funds, you're not going to find an Enron or Tyco," he said.

Before you invest

Not all religious funds use the same screens. Among Christian funds, for instance, some may lean toward a more liberal interpretation of the Bible while others take a more conservative stance.

That's why it's important for individuals who choose values-based investing to carefully research the types of screens funds use and how strictly they follow them -- information that can be found in a fund's prospectus and Web site, Morningstar's Rocco said.

"People need to look at how strict the screens are and how does that limit or tilt your investment universe," he said.

Besides closely examining screens, investors should also consider how limited exposure to certain industries may affect their overall portfolio. Factors that influence regular investment decisions -- quality of management, fund strategy and expenses -- also should be taken into account.

While the number of faith-based funds is still a fraction of the entire mutual fund industry, growing demand is fueling their numbers.

Larsen said his organization began tracking religious mutual funds this year due to growing investor interest. He estimates that about a quarter of the approximately 200 screened mutual funds tracked by his organization have explicit faith-based criteria.

"There's definitely a greater number of people interested in and actively looking for faith-based investing," said Charles Stanley, a certified financial planner and former minister who has helped clients with faith-based investing. "People are becoming aware it's an option and I think there's going to be a big wave more."


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