Which Religion Picks the Best Stocks?

October 26, 2008 at 6:50 am Leave a comment

cross-stocks.jpgWhich faith plays the market best when it seems headed for the financial equivalent of purgatory? That may sound like a whimsical question, but there are, in fact, mutual funds tailored to a number of religions and denominations.

Their track records won’t answer the question of which investment strategy best ensures eternal salvation,
but they have certainly had an impact on some believers’ nest eggs —
and they provide a window into how each faith understands appropriate


For centuries Muslims were either out of the Western stock market or
burdened with a certain amount of guilt. The Koran states, “Whatever you
give as riba so that it might bring increase through the wealth of
other people will bring you no increase with Allah.” Since riba
means “interest,” this was a powerful dampener on investment for the
pious. In 1998, however, the influential scholar Yusuf Talal DeLorenzo
released the so-called “Dow Jones Fatwa”, which allowed believers to
invest in funds with a degree of what one of his sons termed
“permissible impurity”.

Shortly afterward an
Islamic-investment group called the Amana Funds made a mosque-to-mosque
push for business. Amana’s funds avoid stocks with above 5% stakes in
alcohol, pork or tobacco. None of these is tightly connected to a major
market dynamic, and during the long-running bull market Amana’s success
owed less to its distinguished Islamic legal team than to its head
stock-picker, non-Muslim Nicholas Kaiser. But as Mohen Salam, Amana’s
director of Islamic investing, points out, “during a bear market, and
particularly during this credit crisis,” other Islamic restrictions
have kept Amana away from the most radioactive issues. It avoids
investment banks such as Lehman Brothers because of the limitation on
interest-oriented business. Along the same lines, says David Kathman, a
mutual fund analyst at the Morningstar research group, Amana “won’t own
companies with too much debt on their balance sheets, because if you
have too much debt you’re paying interest on it.” The top three
holdings of its large growth fund are tech titan Apple, fertilizer
giant Potash Corp. and freight railroad firm Norfolk Southern.

Amana’s value has dropped along with that of the rest of the market in
the past few months. But it has lost less than other funds, remaining
in the top 2% of the Morningstar Research Group’s funds the in the
large-growth category.


Occasionally Salam lunches with a colleague who plays a similar role at
Ave Maria Catholic Values, a fund whose religious advisory board has
included such conservative luminaries as pizza baron Tom Monaghan and
religious right activist Phyllis Schlafly. Ave Maria will not invest in
companies involved with abortion, contraception or pornography. Perhaps
more importantly for the future, it won’t buy into firms that offer
domestic partnership benefits to unmarried couples of any gender. Since
both Presidential candidates have come out for such benefits and the
list of companies offering them should grow, this could become a
drawback. Top holdings of its mid-cap blend fund include
electro-optical maker Gentex, printing solutions provider Zebra
Technologies and Meadowbrook Insurance Group

Maria’s mid-cap blend is not in the Morningstar top 5%, but another,
tiny Catholic fund called Epiphany has a large blend that is in its
category, and has posted an incredible (given market conditions) growth
rate of about 40% from June to September. Epiphany, too, plays
doctrinal hardball, basing its screening process on what CEO Sam
Saladino says are “a lot of different Church teachings.” Epiphany
eschews companies that contribute to Planned Parenthood, tries to avoid
those that manufacture weapons or discourage unions. It gravitates
predictably toward firms engaged in adult (rather than embryonic)
stem-cell research, and, interestingly, to companies in the top-100
firms list of the magazine Working Mother. An Epiphany
spokeswoman explained, “When looking for positive criteria to reflect
family values, we felt their scorecard fit.” It may be a sign of the
changes in the Church that few Catholics would have employed that
definition of family values 50 years ago.

ethical screening policies may not have a large impact during the
current crisis, but its allergy to corporations that pay their CEOs
more than $12 million a year could. “We know this is a capitalistic
society and companies are trying to make income,” Saladino says, “but
we feel there’s a basic responsibility that companies have to employees
and vice versa and we try to set up screens so these things can be
proved out.” Its large blend fund features financial firms like
Allstate, Bank of New York Mellon and BB&T Corporation.


Like Protestantism itself, Protestant funds come in different flavors.
The largest is Guidestone funds, which began as part of the Southern
Baptist Convention employees’ retirement plan and excludes firms “whose
products, services or activities are publicly recognized as being
incompatible with the moral and ethical posture” of conservative
Christianity. In practice, its large growth fund invests in such
companies as Google, Apple, and oil services giant Schlumberger. The
evangelical Timothy Plan takes as its inspirations two diverse verses
from the Bible: “If any one does not provide for his relatives… he
has disowned the faith and is worse than an unbeliever” and “…do not
participate in another man’s sins; keep yourself pure.” It avoids the
classic “sin stocks” and also provides a fiscal “Hall of Shame” that
includes Playboy Enterprises, Inc. but also Starbucks Corp. — because
of the coffee chain’s domestic-partner benefits coverage, among other
reasons. Its large blend fund’s holdings feature ExxonMobil, Lowe’s and
human-resources solutions provider Paychex.

Then there are more liberal groups such as New Covenant Funds, guided
by the principles of the Presbyterian Church USA; its large blend fund
has holdings like AT&T and ExxonMobil. Both it and the MMA Praxis
funds, affiliated with the Mennonites, tend to resemble secular liberal
SRIs. The Mennonite fund, for example, uses shareholder advocacy to
press causes like fair-trade coffee and HIV/AIDS prevention. Its large
blend holdings include Costco, JP Morgan and Berkshire Hathaway.


Morningstar’s Kathman has never heard of a religious investment fund
aimed at Jews. Religious Jews are not, however, exempted from observing
biblically-derived market etiquette. Aaron Levine, head of the
economics department at New York’s Yeshiva University, says that
significant direct investment in a tobacco company “would be considered
an encouragement of wrongdoing on a grand scale.” Yet, he believes,
investing in a mutual fund with a small stake in tobacco might be
acceptable. The same, however, does not apply to a weapons company:
“Regarding direct danger to life, there are no small percentages,” he
says. Levine also notes that Jews are encouraged to involve themselves
in enterprises that (in rabbinic language) “produce the good settlement
of the earth.”

faith side of religious funds is aimed at decreasing sin rather than
increasing profit, and doing that well doesn’t guarantee a strong
return on investment. Amana’s Salam, observing that there are several
other Muslim groups that have not fared as well during the crisis as
his own, explains “After you’ve screened for the Islamic criteria, you
still end up with 50% of the market available,” and from then on “it’s
a matter of good stock-investment skills.” Kathman has written, “If you
decide to invest in any of these funds, it should be because you agree
with the moral principals [sic] underlying the fund,” not because you
think those principles will be the ones that assure a good return.

Source: TIME


Entry filed under: Christian, Finances. Tags: , , , , , .

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