Be Careful When Attempting Faith Based Investing

Faith Based Investing is starting to get some press and investment companies are hearing the call, creating funds to meet that demand.  While I am Christian (Greek Orthodox to be exact) I am not a hardcore religious guy, so I don’t really get the desire to have a faith based portfolio, but more importantly, I don’t think the investment even meets those goal of someone that would have that desire

What is the Definition of Faith Based Fund Investing?

Faith based fund investing is investing your money with funds that allegedly follow your faith’s guidelines.  Which leads to our first problem, what if you, personally, are a little bit more liberal than your religion?  Despite being fiscally conservative, I am pro-choice, and for same sex marriage; I doubt most religions would agree my particular views on those subjects (I did find out in pre-marriage meetings with my Priest that Greek Orthodox don’t take the same “you are going to hell” view as the Catholic).

Next there are two types of funds, those that just claim to be a faith based investment and those that line up exactly with a specific faith.  If we are talking about the former, there are contradictions which can’t be overcome – despite the similarities between Judaism and Christianity there are smaller rules which just can’t be lined up.  It is a small one, but how about Kosher rules for one?

Ignoring those rudimentary issues, my real problem is understanding how the holdings of a particular mutual fund is or isn’t “faithful” to your particular religion?

Examples of Faith Based Funds

A recent Smart Money article Titled, “Divine Intervention: God and Your 401(k)” provides a few examples from the LKCM Aquinas Funds, who, according to their website,

The LKCM Aquinas Funds practice socially responsible investing within the framework provided by the United States Conference of Catholic Bishops Socially Responsible Investment Guidelines. The LKCM Aquinas Funds follow these guidelines by using an approach that focuses on Catholic values screening of portfolio companies, proactive dialogue with those companies whose practices conflict with the guidelines, and potential exclusion of those companies that are unwilling to alter their practices over a reasonable period of time.

LKCM monitors portfolio companies selected for each LKCM Aquinas Fund for policies on various issues contemplated by the guidelines, including:

  • abortion
  • contraceptives
  • embryonic stem cell research
  • weapons of mass destruction
  • human rights
  • economic priorities
  • environmental responsibility
  • fair employment practices

In monitoring portfolio companies, LKCM utilizes screening services provided by third parties and other independent research resources.

If an LKCM Aquinas Fund invests in a portfolio company whose policies are inconsistent with the guidelines, LKCM may attempt to influence the company’s policies through, among other things, proactive dialogue and other efforts. If LKCM’s efforts are unsuccessful over a reasonable period of time, LKCM may sell the company’s securities or otherwise exclude future investments in such companies.

Admirable goals, but how is that even possible in today’s world? Take for example LKCM Aquinas Value Fund (AQEIX).  Their top ten holdings are:

  1. Akamai Technologies, Inc. (AKAM)
  2. CBS Corporation B (CBS)
  3. Lazard, Ltd. (LAZ)
  4. Kohl’s Corporation (KSS)
  5. J.P. Morgan Chase & Co. (JPM)
  6. Federated Govt Obligs Instl
  7. ResMed Inc. (RMD)
  8. American Express Company (AXP)
  9. EMC Corporation (EMC)
  10. Brocade Communications Systems, Inc. (BRCD)

Right off the bat, I can tell you that number 6 should raise a red flag because the Federal Government’s goals and objectives especially under President Obama is not in line with Catholic beliefs.

Next, JP Morgan is one of the largest banks in the world, you don’t think they have their hands in lending money for embryonic stem cell research or to contraceptive manufacturers?  None of these HUGE companies provide same-sex domestic partner benefits? Do the tech companies (EMC and Brocade) actively turn down business from adult websites? Kohl’s has had its trouble with alleged sweatshop abuse, did the fund own it during/before those allegations?

Is every for-profit company perfect? Absolutely not, but I would hate for someone to buy a single share of any mutual fund just because they believe, without property vetting, that the fund follows their religious goals and views.

21 Responses to Be Careful When Attempting Faith Based Investing

  1. Evan,
    This entire topic raises many questions for me.

    First: Isn’t it true that faith based investments have notoriously bad rate of returns?

    Second: By buying stock in a company, isn’t it true that my money doesn’t really go directly to that company, but to some stockholder who sold his stock?

    Third: If I am going to be consistent about buying only faith based investments, would I not also refuse to buy groceries at a store which sells any product I don’t approve of (such as tobacco or alcohol)?

    It seems to me that faith based investments might be a bunch of to-do about very little. I would appreciate your thoughts.

    • I have no idea if you can state that all faith based investments have a bad rate of return. I just never did the research because this type of investment really disinterests me and kind actually angers me lol.

      Your last two points are VERY interesting.
      ” By buying stock in a company, isn’t it true that my money doesn’t really go directly to that company, but to some stockholder who sold his stock?”
      – I have never looked at this way. You could make that argument, but at the same time by you purchasing the stock you are keeping the price where it is today allowing the company to leverage their market cap. I think the point is actually more profound and probably deserves a post unto itself.

      “If I am going to be consistent about buying only faith based investments, would I not also refuse to buy groceries at a store which sells any product I don’t approve of (such as tobacco or alcohol)?”
      – EXACTLY. I think you’d be much more effective in refraining from a store, then investing in a “competitor.”

  2. If my point two deserves a post unto itself, why don’t you write it. I for one would love to read it.

    My point three was meant to be a bit facetious…my guess is that the same people who are big on faith based investments probably have no qualms about shopping at Wal-Mart or Kroger, which both sell tobacco and alcohol at many of their stores.

    I am just saying that in the world we live in, it is nearly impossible to boycott every business that doesn’t line up with our values.

  3. I definitely think this is a product created by the financial industry to make some more money by taking advantage of well meaning citizens. You cant ever be sure that the companies are in fact following your faith’s guidelines, and like mentioned above, its impossible to live in america and only shop and spend your money at places you approve of. Where would you buy food since pretty much every store sells alcohol. I really think this whole idea is basically a huge scam for companies to make some more money off of hard working americans.

  4. I personally think the investing world is hard enough to make a decent return. But investing in such a subset of companies… well, I think those investors would have a better chance of winning a fight with Mike Tyson while having one hand tied behind their backs…

    • Are we talking 1986 bad ass tyson, or 2008 hangover star tyson? Strike that either way you are probably wrong! Tyson scares the shit out of me. lol

      Seriously Great point

      • Yeah, I still wouldn’t want to mess with Iron Mike! Even if he had 1 hand tied behind his back (instead of me!). I like my ears just the way they are!!! :)

  5. To clarify – Catholics are taught everyone ELSE is going to hell, not us ;)

    Joe’s first question is right – these have lower rates of return. And Money Reasons point on investing in a smaller subset could explain why.

    • You sound like my Father in law, who likes to remind me that he is part of the “Holy Roman Catholic Church” and yes he says it exactly ike that.

  6. Another wonderful marketing gimmick, courtesy of the mutual fund industry.

    Following up on Joe’s comment – I guess no Catholics should shop at Wal-Mart or Target since they sell condoms and have pharmacies that provide birth control pills?

    Where does it stop? I bet nearly every product has some dark secret that would cause it to fail some religion’s definition of “okay”.

    • ” I bet nearly every product has some dark secret that would cause it to fail some religion’s definition of “okay”.”

      I have to agree wth you. Every place that sold Cheese and Meat would violate Strict Hebrew laws; Every place that sells pork is off the list for Muslims; and Every place that sells porn is off the list for Christans lol

  7. As someone who tries to live according to the bible, I’ve done a bit of research on faith-based investing.

    Honestly, I don’t think it’s an easy decision to make whether or not to invest in these funds.

    Joe makes good points comparing whether we should shop at grocery stores because they sell stuff like cigarettes and raunchy magazines. Should we then create stores that purposely don’t offer these things? I don’t know if that’s going to happen.

    If we were to stay away from anything just because there’s one thing we don’t agree with, we’d probably be extremely sheltered.

    Perhaps we could invest according to what we know, and not worry about the rest that we can’t control. All I know is that indexing and diversifying is generally a good way to cover your bases.

    I’d spend more of my time trying to focus my energy on changing things I can change.

    • I have always wondered What does living life according to the bible mean? Is it the basic tenents of forgiveness and treating others with respect? or is it more literal than that?

      Do you have a post you wrote which can explain it better?

      • Evan,

        I’m not sure if I can answer that question easily within a reply.

        I don’t have a post on what it means to live according to the bible. Although I identify myself as bible-following Christian, my blog is not a “Christian finance blog” like others openly state to be. Not that there’s anything wrong with that, because I read and comment frequently on those blogs too.

        I don’t want to go off on a tangent from your original post topic, but I guess living life according to the bible means to study what it teaches, and live accordingly in obedience. It’s a process that is lifelong and has its challenges.

  8. Never even considered this before. Definitely seems that you’re going to be investing in companies that have some sort of handicap based off their religion since it limits their competitive advantages… good thing I’m not very religious!

  9. I don’t had enough idea about Faith based fund investing, Thanks for this wonderful posts. I gotta know something very interesting.

  10. You miss the major point: The heart of faith-based investing is truly about the investor’s heart. As someone who’s been following faith-based investing for nearly 10 years I have seen many investors utilize this process to grow closer to God. If we are faithful “in little things” He will entrust us with larger things. No process is perfect, but doesn’t mean we can’t at least try to be better investors (financially and morally).

    It is not about a set of rules but rather trying to find the best investments that are pleasing to the Lord. I believe there are good, bad, and ugly choices. By using good research you can uncover what products and services a company offers and what they are doing with their profits.

    Yes, no company is without sin (we are all sinners and fall short of God’s glory) but some companies go out of their way to add to the moral decay of our society. I personally want no part in that…

    As for returns, there is no proof that investing with one’s faith as a guide will sacrifice performance. If you are good at stock picking (you can tie one hand behind your back, fight Mike Tyson, beat him, and STILL get good performance) LOL. But seriously, many look at faith-based investing as a gimmick, I have done enough research to know you can have your faith AND performance too!

    • Jay,

      Thanks for stopping by, your site is a GREAT resource.

      I absolutely you believe you can have your faith and performance too, but at what point is the mutual fund (using the sole example above) just a marketing gimic? The top 10 holdings leave a lot to be desired in terms of Catholic or Christian values.

  11. Evan,
    Thank you for the kind words! Much appreciated.

    I agree with most of the faith-based mutual funds. I am not an advocate of any mutual funds. The fees and performance are dismal in most cases. I am not convinced though that any of the fund companies offering a faith-based fund are doing so for a gimmicky reason. The cause has longed dictated the desire to offer the fund. For example Timothy Plan offers faith-based funds to help Christians not per se just to make money from Christians.

    The bigger problem lies in the screening criteria. Do you just look at the products and services they offer or do you go deeper and look at domestic partner benefits and donations etc. This creates like you mentioned a disconnect between your personal values and that of the fund manager. That is why I advocate knowing exactly what you own and buying individual securities that meet your moral and financial objectives.

Leave a reply


− 1 = 0