Independent mutual fund groups that manage morally responsible funds, which screen companies by socially conservative measures of several kinds, are receiving increased visibility and distribution.
Unlike the better-known socially responsible funds, which are meant for liberals, these are built for religious groups such as Roman Catholics, Muslims, conservative Christians, Christian Scientists, and Seventh-Day Adventists.
The various morally responsible funds screen out companies that, for example, provide benefits for same-sex partners and condone abortion.
Large banks and brokerage houses are starting to notice such funds, said Peter D. Kinder, the president of KLD Inc., a Boston firm that tracks socially responsible investments.
Community banks in regions where religion plays a particularly prominent role in everyday life are finding these funds attractive offerings, Mr. Kinder said. For example, a conservative Christian fund could excel at a southern community bank, but it may not find many investors at a similar bank farther north, he said.
It is all about putting the right products in the hands of the right customers, Mr. Kinder said.
One of the oldest morally responsible fund companies is the eight-year-old Timothy Plan of Portsmouth, N.H., which says its funds follow conservative Christian principles. It now has $80 million of assets under management in eight funds, which are available through 250 broker-dealers.
Its investment philosophy includes zero tolerance for companies that support gay rights, abortion, pornography, or anti-family entertainment entertainment that depicts gay characters in a positive light or includes sex or excessive violence.
Stephen Ally, the national director of marketing for the Timothy Plan, pointed out that its funds do not buy stock in companies such as Walt Disney Co., which gives money to Planned Parenthood, provides same-sex benefits, and produces controversial films through its Miramax division.
Mr. Ally said it also will not sell its funds through companies that it would not own, such as American Express, which has a history of contributing to pro-choice groups and offers same-sex benefits to its employees.
He conceded that this limits the companys distribution capabilities. Sure, wed love every broker-dealer to be able to sell us, but that just isnt possible, Mr. Ally said. We are not going to compromise.
Last month the Timothy Plan teamed up with 1Point Administrative Services of Nashville to offer a morally responsible 401(k) plan to small businesses in the Southeast. If customers want morally responsible funds, brokerages are going to offer them, said Barry Stokes, the president of 1Point.
Capstone Asset Management Co. of Houston has $475 million of assets in its six Serv Funds. (The name stands for socially ethical religious value.). The funds, which adhere to the tenets of the Seventh-Day Adventist Church, screen out companies with interests in gambling, alcohol, tobacco, pornography, meatpacking, and caffeinated beverages.
The funds are available through securities brokers and independent broker-dealers that serve financial planners.
Aquinas Investment Advisors, which was launched in 1994 by the Dallas-based Catholic Foundation, manages $190 million of assets in six Aquinas Catholic Values Mutual Funds. The firm screens out gambling companies as well as those that support abortion or provide abortion services and those with a record of sex discrimination problems.
The funds are sold by Fidelity Investments, Charles Schwab Corp., Morgan Stanley Dean Witter, and other third-party marketers. The Catholic Foundation also offers them to churches and Roman Catholic fraternal organizations, such as the Knights of Columbus.
American Trust Co. of Hauppage, N.Y. manages $29 million in two American Trust Allegiance Funds, which follow the tenets of the Church of Jesus Christ, Scientist. The funds, which shun companies involved in alcohol, gambling, tobacco, and health care, are distributed through the Christian Scientist church and about 50 brokers.
There is also at least one U.S. Muslim fund family, offered by Saturna Capital Corp. of Bellingham, Wash. Its two Amana Mutual Funds Trust funds, which manage $50 million of assets, do not invest in companies that deal with pork products, alcohol, or pornography. Also excluded, as investments or sales channels, are companies that earn more than 40% of their income from interest.
Fifty-five broker-dealers distribute the Amana funds, said Phelps McIlvaine, a vice president and portfolio manager for Amana. Morally responsible fund managers have a tougher job screening their funds, Mr. McIlvaine said, since they have to pay attention to religious tenets as well as investors needs.
Though investors in these funds have morals in mind, they still expect the products to perform well. Last year the Standard & Poors 500 index fell 9.1%, but the Timothy Plans two small-cap value funds each rose nearly 11%. Aquinas funds also outperformed the S&P last year; its growth fund returned 2.5%, its small-cap performance fund 3.2%, and its fixed-income fund 9.1%, while the small-cap value fund lost 1.2%.
Mr. Kinder said these conservative products have found a market niche. I am not sure about the breadth or depth of that market, because these plans are not attracting a huge amount of money, but they are attracting enough to build a nice business, he said. Theres certainly a market on that end of the spectrum.
Distributors like such funds because investors in them tend to stick they dont jump into the next hot area, Mr. Kinder said. Some morally responsible offerings have had bad performance over the years, and it is astonishing the number of investors they are able to retain.
Mr. Stokes of 1Point said the funds that can balance performance and moral concerns will survive over the long haul. Lets face it, the performance of most funds is very similar, he said. Funds have to go beyond that. People are looking at what they own and how it jives with their beliefs.
Jeffrey Harris, a co-manager of the American Trust Allegiance Funds, said investment products like his need to perform well to attract banks, brokerages, and third-party marketers.
We have to focus on long-term growth. Investors want their money invested according to their beliefs, but what they really want is performance.