LOS ANGELES—When Mary Naber finished her consultant internship in Santa Clara, Calif., she invested a portion of her paycheck in a top-performing mutual fund mentioned in Money magazine.

“It's what everyone was doing,” she said. But later she discovered the fund invested in corporations profiting from pornography and abortion. She not only sold the investment but found an ethical investment that better suited her Christian values.

According to a recent investor survey, a growing number of investors like Naber have been putting their money where their faith is—in religious-related investments.

Managers of such funds say investing has continued even while stocks have lost value.

The investor survey, done by Thomson Wealth Management for Mennonite Mutual Aid, showed that religious-related mutual funds have grown from 34 funds in 1999 to 75 funds today. In addition, the research also showed that individuals are investing money in such funds at a rate almost double investments in the remainder of the mutual fund industry.

Religious funds—a relatively recent creation—shadow socially responsible investing (or SRI, as the trend is known in the industry), which has become popular in the past 30 years. Whereas these funds traditionally screen against companies profiting from alcohol, gambling or tobacco, religious-related investments go a step further. They include funds such as the Amana Funds, an Islamic fund that shuns liquor, pornography, gambling and investments that pay interest; and the Timothy Fund, one of the first biblically based religious funds.

According to the Kennewick, Wash.-based Carlisle Social Investments, more than 70% of socially responsible investing portfolios in the United States in 2001 were not in compliance with the investment guidelines adopted by the U.S. Conference of Catholic Bishops due to their failure to employ abortion and/or birth control screens.

Therefore, a handful of Catholic investment funds have entered the horizon over the past decade. They include Ave Maria Catholic Values Fund, Aquinas Funds Inc., The Catholic Funds and the Catholic Values Investment Trust, as well as the Carlisle Catholic Indexes and Christian Brothers Investment Services, which are open only to Catholic institutions.

Investment Trend

Naber's run-in with unscreened funds led her to explore the trend in religious investing. A Harvard graduate in economics and religion, her senior thesis examined the effects of screens on Catholic investing and also led her to found FaithfulSteward.org, which provides resources on ethical investing. She now works as a financial adviser for Merrill Lynch in Beverly Hills.

Studies by Naber and the Social Investment Forum demonstrate that there appears to be little difference in returns between religious or socially conscious funds compared with others.

Naber's research on Catholic principles from 1991-1995 was published in the Journal of Investing. She concluded that religiously screened portfolios did not yield a significantly different return once adjustments were made for market risk, such as taking into consideration the high volatility and risk found in traditional “sin” portfolios that contain pharmaceutical or military companies.

Naber chose to research Catholic investments because “the Catholic Church has the most well-thought-out guidelines on the subject,” she said, referring to the National Council of Catholic Bishops/U.S. Conference of Catholic Bishops' 1991 document “Socially Responsible Investment Guidelines.”

“The U.S. bishops' guidelines outlined the procedures that they intended to follow regarding the collective investments of the bishops' conference,” explained Dr. Robert Kennedy, a Catholic studies and management professor at the University of St. Thomas in St. Paul, Minn. “It includes a hodgepodge of specific things they did not want to invest in such as abortifacients, tobacco or companies that did not have enough women represented on their boards.”

“The bishops are clear in their direction that in considering investments one must consider both the financial and the social aspect. It is clear that the ethical dimension is important and requires attention,” said Brother Michael O'Hern, Chief Executive Officer for Christian Brothers Investment Services, the country's first Catholic investment company and one of the largest with nearly $3 billion in institutional assets.

Brother O'Hern said Christian Brothers uses the U.S. bishops' guidelines and its document “Economic Justice for All” to help make investment decisions.

However, aside from those guidelines, when it comes to Church teaching on the issue of investing, the guidance is sparse. Very few Church documents speak directly of investments.

“The function of the Church and magisterium is to remind us of moral principles,” Kennedy said. “It is the task of the laity to imply those moral principles in specific professions.”

Therefore, he said, Catholic ethicists have not devoted much attention to the problems of investing with a conscience, since so much of investing quickly becomes case-specific. “There is a need to look at individual companies in order to make judgments about them,” he said.

Ethical Concerns

Looking at individual companies is what most Catholic investment companies attempt to do. By most accounts, the Catholic-related funds tend to follow the bishops' guidelines. Whereas Christian and socially responsible funds traditionally avoid stocks associated with alcohol, tobacco and gambling, Catholic funds tend to avoid corporations that support abortion, pornography and nuclear weapons. Still, the funds all take a different approach to the screens they employ.

Catholic Values Investment Trust, one of the first Catholic funds available to individuals, started in 1997 and screens out companies related to abortion and birth control, those that belittle human dignity and those that produce weapons of mass destruction.

“We work closely with our board to screen investments that adhere to the Church and its teachings,” said Executive Director Walter Miller.

The Ave Maria Catholic Values Fund employs additional screens, choosing not to invest in companies that support the American Civil Liberties Union and corporations that offer benefits for same-sex couples. This prevents them from investing in corporations such as Intel and Microsoft.

“Because in the eyes of the Church marriage is a unique relationship—and is, in fact, a sacrament—we would choose not to invest in companies whose policies put nonmarital relationships on a status with marital relationships,” former fund manager Greg Watkins said shortly after the fund was developed. “This means domestic-partner benefits. If a company offers that, we would choose to invest in a different company.”

“That opposes the law in many states,” noted Miller, whose funds do not take this issue into consideration. “Thirty-nine states have laws mandating same-sex benefits.”

Christian Brothers Investment Services and the Dallas-based Aquinas Funds use a different method. In addition to screening, they take a proactive approach.

“We will invest in companies with the intent of changing corporate policy,” said Aquinas President Frank Rauscher. As an example, he cites Aquinas' success in getting companies such as Whirlpool, Harley-Davidson Motor Co. and Dayton Hudson Corp. (owner of Target stores) to stop funding Planned Parenthood.

While admirable to some, others question Rauscher's tactic.

“It's arguable whether it works or not. Some question whether an investor is materially cooperating with, and profiting from, such companies while you own them,” said James Kelly, financial adviser with the Front Royal, Va.-based Paladin Financial.

“We will not invest in intrinsically evil companies such as Playboy. With other companies, if we don't feel we are making progress with a company, we divest and blacklist them,” Rauscher said.

“If you own stock in a company, you're financing it,” said Thomas Strobhar, president of Pro Vita Advisors, a nonprofit that does investment research to expose corporate support of abortion, pornography and religious bigotry. Strobhar founded the organization in 1989.

Both Catholic Values Investment Trust and Ave Maria use research by Pro Vita Advisors to help screen their investments.

Strobhar's organization has influenced the investment practices of hundreds of religious institutions and has filed a variety of shareholder resolutions on controversial topics. In the mid-1990s he was the first to file a shareholder resolution on contraceptives with Bristol-Myers Squibb. While the company did not adopt the resolution, it decided to sell its contraceptive business a couple of years later.

Profitable?

In addition to ethics, the real question for investors tends to be whether religious-based investments offer a return, especially during struggling economic times. The statistics tend to show that they do.

“The good news for Catholic institutions and individuals is that they can do what the bishops called for without sacrificing returns,” said Jeffrey Petersen, president of Carlisle Social Investments. “We know from our own experience that it is not necessary to suffer below-average returns just because 300 or so companies have been removed from a universe of 3,000 companies.”

“We've had more people buying shares than redeeming them,” Rauscher said. “Even though market evaluations are down, we've had a net influx of money.”

Anna Hall, Aquinas Funds' marketing officer, said its funds have been doing better, overall, than the market. “While they are down, they aren't as down as others,” she said.

Miller agreed. “Our funds are performing exactly even with the market. We don't see people pulling money out. In fact, it's a great time to buy.”

Tim Drake is executive editor of Catholic.net.