Mutual funds: Virtue investing
NEW YORK – Wall Street presumably isn’t a place where those hoping to mend their ways in the new year might turn for inspiration. But some investors looking to better align their social or religious convictions with their investments have found sizable returns.
Mutual funds that incorporate such principles range from those that invest with an eye toward helping the environment to those that avoid companies that extend health benefits to unwed couples. And while some investors are predisposed to invest in funds whose agendas match their own, even investors who don’t necessarily share a fund’s beliefs can still find value.
Consider the Amana Funds, which invest according to Islamic principles. The funds avoid companies that sell or promote liquor, pornography, gambling and pork products. In adhering to Islamic law, the funds also exclude companies such as brokerages that make a business of charging or receiving interest or companies that carry excessive debt.
While the restrictions could appear limiting, the funds have flourished. The Amana Trust Income fund, a large-capitalization value fund, saw a return of about 19.3 percent in 2006. The fund, which has assets of about $111 million, carries a five-star rating from Morningstar Inc., which evaluates funds.
Another group of funds that apply religion to investing are the Ave Maria Mutual Funds, which follow Catholic principles and prohibit investments in companies that draw profits from pornography, abortion or those that donate to Planned Parenthood.
George Schwartz, who oversees the funds, said an ample number of companies manage to merit consideration under the fund’s principles.
“I’m not a theologian. I’m a portfolio manager,” said Schwartz, adding the restrictions still allow him to assemble a robust portfolio. “We’ve got to have the investment performance.”
The Ave Maria Catholic Values Fund, with assets of about $258 million and a four-star Morningstar rating, posted a return of about 14.2 percent last year.
Jeff Tjornehoj, an analyst with fund-tracker Lipper Inc., warns that good deeds don’t necessarily make good investments: “The biggest thing is to treat these as if you’re buying any other funds. Consider the performance and risk.”
He contends investors can in many cases advance a cause or belief by investing where returns are greatest, regardless of the type of investments.
“If you found a low-cost index fund that included a sin stock then sometimes it pays to be in that kind of fund to do well and then donate to a cause you like,” Tjornehoj said.
One fund whose patron saint would more likely be Gordon Gekko than a social or religious champion is the Vice Fund, which invests in alcohol, gaming, tobacco and defense.
“I call them bulletproof in terms of their sensitivity to the economic cycle,” said Charles Norton, who runs the fund. “They’re steady performers in good times and bad.”