The Fonda Blog

Faith & Finance: A Boom in Religious Funds

What if Jesus were a stock picker?

It’s a question more investors seem to be asking these days. At a time when investors’ confidence in the markets has been shaken—even after the big rally of 2009—experts say a growing number of Americans are integrating their faith with their finances. The number of religious mutual funds has tripled over the past decade, to more than 90—with one now available for almost every flock, from evangelical Christians to Mennonites and Muslims.

Religious funds now control more than $27 billion in assets, up from $10 billion in the late 1990s, making it one of the hottest sectors in the broader category of socially responsible funds. “People are waking up and saying, ‘What I do with my money ought to reflect my values,’” says David Miller, a scholar at Princeton University’s Center for the Study of Religion.

Socially responsible funds have been around for years, of course, attracting both diehard followers and critics who see their stock-screening methods as a drag on returns. But the faith-fund boom is part of a growing hunger among religious people for financial guidance. While some financial planners specialize in estate planning and others claim an expertise in taxes, more and more are claiming the label of Christian financial adviser. Churches are also getting into the act, setting up workshops that dispense financial advice. And just this month, five new religion-based exchange traded funds were launched.

While most mutual fund managers place a laser-like focus on financial measures such as earnings per share and balance-sheet debt, managers of faith-based funds first check whether they think a company violates scriptural teachings. But injecting morals into financing is not without its share of controversy. Catholic funds typically draw a line at companies they believe support abortion or contraception; the evangelical Timothy Plan bans stocks of companies deemed supportive of a “gay lifestyle.”

Personal beliefs aside, each fund’s interpretation of scripture is open to criticism. “Why single out companies that provide same-sex benefits when they also provide benefits to employees who are greedy or venal or in other ways immoral according to biblical teaching?” asks Gary Moore, an investment adviser and founder of the nonprofit Financial Seminary in Sarasota, Fla.

Of course, just because a fund claims to have God on its side doesn’t mean investors will be blessed with top returns. Diversified U.S. religious stock funds are up an annual average of 2.27 percent over the past five years, just below the 2.34 percent return for all diversified equity funds, according to Morningstar. Religious funds tend to have expenses above the industry average, and because they often screen out certain sectors, they can be handcuffed when market sentiment shifts to an industry they’ve excluded. To find the best options, we looked for funds with solid long-term records and managers who have been at the helm for at least three years. (more at site)

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