In many respects, faith-based investing is the original impact investing, so it’s only natural that the rapidly expanding appeal of ESG and sustainable investing is also raising awareness of faith-based strategies.
“The topic of faith-based investing has been coming up more and more in conversations with clients,” said Laurie Allen, founder of LA Wealth Management.
“This is a big area of interest for me, personally, as well as for many of our clients,” she added. “I think impact investing, whether with a religious focus or not, is becoming more sought after.”
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Allen doesn’t market her advisory services as faith-based, but she does include it as part of the initial client profiling because she believes people should have the option to invest in line with their values when possible.
“In this time of mutual funds, it’s difficult for people to understand the degree to which they are investing in certain industries and companies,” she said. “Index funds are great, but you’re also buying everything. When you allow people to have the ability to have their investments aligned with their beliefs and value systems, they feel much more connected with what they’re doing.”
While faith-based investing through asset managers like Ave Maria, GuideStone, Eventide and Timothy Plan is sometimes viewed as the conservative version of environmental, social and governance investing, some advisers say the appeal is much more expansive.
“I’ve only had one client actually looking for faith-based funds; he became really interested, especially once he saw it can perform well relative to the index,” said Thomas Rindahl, a financial adviser at Truwest Wealth Management.
“Some of these folks aren’t even religious, they just don’t want to invest in a certain type of business,” he said. “It’s just normally part of our conversation with clients when we’re putting together a portfolio. I’ll ask if they want to be socially or morally responsible; when that is brought to light, some realize a faith-based fund makes sense.”
Rindahl said a lot of the recent demand is coming from younger people.
“Where I see heightened interest is with the younger investors,” he said. “I’m not sure if it’s for faith-based or if they just want to be out of disreputable businesses.”
A variety of beliefs
As with ESG and sustainable investing, there are many variations of faith-based investing. In addition to crossing over and incorporating a variety of religions and religious beliefs, faith-based strategies can be both inclusive and exclusive.
Many faith-based strategies originated by screening industries and companies that violated specific church values and mores.
GuideStone Capital Management, for example, is a 102-year-old organization established to support retired pastors and their widows, and it has expanded into an $18 billion manager of portfolios that screen out companies involved in alcohol, tobacco, gambling, pornography, and abortion.
GuideStone’s 24 mutual funds, which have only been made available to the general public since 2015, are now on 50 different advisory platforms, said its president, David Spika.
“We promote ourselves as the largest faith-based investment manager in the country,” he said. “We are a Christian organization, and we want to impart our values in the mutual funds we manage.”
As part of GuideStone’s evolution, it expanded beyond negative screens over the past few years to take on an advocacy role, which falls more in line with many impact investing and ESG strategies.
“Advocacy is a bridge between exclusionary and impact investing,” Spika said. “The exclusionary screens represent what we’re against, but the advocacy and impact investing in what we’re for. There’s a tremendous opportunity to invest in companies that are doing good around the world.”
At Ave Maria Mutual Funds, which manages $2.4 billion across six mutual funds, the screens are in line with Catholic values and eliminate companies involved in abortion, pornography, embryonic stem cells and contributors to Planned Parenthood.
“I think we’re in a sweet spot with the growing awareness and all the press on ESG,” said Robert Schwartz, senior vice president at Ave Maria. “We’re not exactly ESG, but the focus on ESG draws attention to morally aware investing.”
In terms of market potential, about 40% of Ave Maria’s asset flows come directly from individual investors and 60% comes through financial intermediaries.
Considering the industry average of 20% of assets coming direct and 80% coming through intermediaries, Schwartz believes Ave Maria is poised for expanded market share in the adviser channel.
“We see significant potential for the intermediary market,” he said. “We realize we’re not for everybody because of our moral screens, but we think most advisers have clients that would be interested in our funds because of the results.”
Critics have challenged the investment logic of exclusionary screens as potential drags on performance, but Schwartz said the screens only eliminate about 175 of the companies making up the Russell 3000 Index.
And in terms of performance, the flagship $880 million Ave Maria Growth Fund (AVEGX) has outperformed the S&P 500 Index year to date, as well as over the 3-, 5-, and 10-year periods.
And that performance was accomplished without owning any of the high-performing FAANG stocks represented by Facebook, Amazon, Apple, Netflix and Google (Alphabet).
Microsoft is the only mega-cap tech stock Ave Maria funds can own because it recently stopped contributing to Planned Parenthood.
Eventide rising
When it comes to performance, it would be difficult to argue against Eventide Gilead (ETGLX), a $3.6 billion faith-based fund that is up more than 29% this year on the heels of a 33.8% gain last year.
For perspective, the S&P 500 is up 4.1% this year and gained 28.8% last year.
Eventide, which has grown to seven funds and $5.5 billion under management since launching in 2008, screens out companies involved in alcohol, tobacco, pornography, gambling and violent video games.
“We started Eventide because we wanted to help Christian and broader conscientious investors,” said co-founder and Chief Executive Robin John.
“We wanted to create a space in investing that aligned with loving God and loving your neighbor,” John said. “We have developed a framework that seeks to invest in companies that are creating value for their stakeholders.”
Facing the faithless
Some criticisms of faith-based investing are in line with criticisms of ESG investing, in that the products are less than perfect.
“I suppose half a loaf is better than none, but there are holes in faith-based investing because what some people might want might not be easily available to them,” said Bart Brewer, financial planning consultant at Global Financial Advisory Services.
“If you want to screen out pornography companies, for example, the next question to ask is if it’s OK to buy stock in a hotel that offers pornographic films in the rooms, or what about health insurance companies that cover abortions?” Brewer said. “It’s an imperfect market, but if people want to feel good, these kinds of funds can help you out.”
