Investing for your belief
By Karen Gibbs
April 16, 2003
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You may have missed it in the wall-to-wall war coverage of the past several weeks, but an investing trailblazer died recently.
With the Rev. Elliott Corbett's death on March 18 following a short illness, the world lost a pioneer in socially-conscious investing. Corbett and fellow United Methodist minister Rev. Luther Tyson founded the Pax World Fund in 1971, marking the beginning of an investment industry based on social, moral and religious beliefs. Each fund has different criteria, but some common themes include avoiding alcohol and tobacco companies, casinos and weapons makers. Other companies stay away from companies viewed as polluters, while others target moral issues such as abortion or benefits for unmarried partners.
Over the past 22 years, the industry has grown steadily, even in bad markets: Socially-conscious or socially-responsible investing continues to attract new money, while other stock funds are experiencing massive outflows of cash. Maybe the difference can be ascribed to investors with a broader, longer-term view compared with the average investor. According to research firm Morningstar, socially-conscious firms took in $1.3 billion in net new cash in 2002, versus an $18.2 billion dollar net outflow from the average diversified U.S. stock fund.
Within this socially responsible investing sector, another subset is emerging: religious investing. Baby boomers are looking for ways to invest according to their conscience, and investing bases on denomination or faith is part of the picture. The appeal is that your investments are not only compatible with your beliefs, but grounded in the theory that your choices can make a difference in how the world operates.
That was a motivation for former bond futures trader Thomas Monaghan, founder and former owner of Dominos Pizza and the Detroit Tigers. Monaghan and his philanthropic foundation, the Ave Maria Foundation, provided most of the start-up money for The Ave Maria Catholic Values Fund launched two years ago by the Schwartz Investment Counsel. Ave Maria avoids companies with direct involvement in abortion, abortion inducing drugs and contraceptives, as well as distributors of those products, hospitals that perform elective abortions, insurers who provide coverage for abortions and companies that make donations to pro-choice groups such as Planned Parenthood.
Orlando, Fla.-based Timothy Plan funds go one step further, screening out firms that offer benefits to unmarried partners of employees. Meanwhile, Meyers Pride Value Fund, managed by Meyers Capital Management, specifically invests in companies with policies that benefit gays and lesbians.
Ideas vary among funds, and one fund's garbage can be another fund's treasure. For instance, while the Ave Maria fund's filters are limited to Catholic moral issues, the Kennewick, Wash.-based Carlisle Catholic indices screen not only for abortion, contraceptives, pornography, alcohol and tobacco, but also for environmental protection and human rights.
Clearly there are some potential pitfalls to faith-based investing, with the biggest being performance. Over the past 10 years, returns for socially-responsible funds have averaged annual returns of 6.7 percent, while diversified U.S. equity funds on average returned 6.93 percent a year. The typical socially-conscious diversified stock fund fell 25.75 percent last year, compared to a 25 percent decline for diversified stock funds, according to Morningstar figures.
By ignoring certain sectors, investors may miss some big gains. Case in point: the tobacco maker once known as Philip Morris (now called Altria) has provided the best shareholder returns in the FORTUNE 500 since the latter's inception in the 1950s.
But if you are adamant about investing according to your beliefs, socially-responsible funds can help you sleep well at night.
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