- The Washington Times - Wednesday, September 25, 2002

Disillusioned by the accounting scandals that helped decimate stock prices, growing numbers of investors are seeking comfort in mutual funds that match their religious values and offer respectable returns.
Religious-oriented funds screen out, or avoid investing in, companies whose products or services conflict with core values of religious faith. The number of religious-oriented funds has more than doubled in the past three years, from 16 in 1999 to 38 this year, according to information provider Thomson Wealth Management.
The funds' total assets jumped 21 percent to $4.42 billion, compared with 11 percent growth for the average fund, while returns have averaged a 0.5 percent annual loss since 1999. That's better than the average mutual fund loss of 5.9 percent.
Examples include the Ave Maria Catholic Values Fund, as well as the Mennonite MMA Praxis funds and the Dow Jones Islamic Index Fund.
"The troubling times of the last year have had the effect of forcing many Americans to confront the way in which they lead their lives," said Rusty Leonard, founder and chief executive of Stewardship Partners Investment Counsel. "This soul searching has resulted in a new generation of religious investors."
Still, religious investing remains a tiny movement, representing less than 1 percent of the $4.82 trillion in total assets for all mutual funds. Analysts say that's because religious-oriented funds have several disadvantages including unpredictable returns and sometimes uneven application of their investment criteria.
"You can't put in a screen for fraud, so I think investors shouldn't get a false sense of security that they are somehow safer," said Emily Hall, senior fund analyst for Morningstar.
She said religious-oriented funds can't offer any more protection from corporate abuses at companies such as Enron Corp. and Tyco International Ltd. than other funds can. "Most are still equity funds, and they're still going to be fairly risky," Ms. Hall said.
Indeed, returns have varied. While religious funds did better over a three-year span, they lagged for the one-year period ending Aug. 31 a 13.42 percent loss compared with a 10.13 percent loss for the average mutual fund.
Over five years, religious funds had an average 5.7 percent gain, compared with a 9.2 percent increase for the average fund.
Here's how they work: Religious funds are part of the broader category known as socially responsible funds, which screen their investments to meet core religious or social principles. The investment criteria can be found on fund Web sites and prospectuses.
For example, Catholic-oriented funds typically avoid health care and drug stocks for their connection to abortion and birth control, while Islamic-oriented funds might shun the financial sector because of the religion's prohibition against usury.
But the investment guidelines are not absolute. A fund opposed to military spending might avoid top defense-related stocks but invest in a company that sells computers to the Pentagon. Or it might divest drug manufacturers but not retailers .
Religious funds also tend to have higher expense ratios because of higher research costs.

ASSOCIATED PRESS


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