Top-Returning Funds That Follow Religious Guidelines
Because religious managers face limitations, you might expect these funds would deliver uninspiring returns. In fact, a number of the faith-based funds have recorded sizzling results.
Among the leaders is Amana Funds , which follow Islamic laws. During the past 10 years, Amana Trust Growth (AMAGX) returned 10.9% annually, outdoing the S&P 500 by 4 percentage points and topping all large growth competitors, according to Morningstar.
In the same period, Amana Trust Income (AMANX) returned 10.8% and surpassed 99% of its large blend peers.
Other faith-based funds that have finished near the top of the standings include Ave Maria Rising Dividend (AVEDX) , a Catholic choice, and Protestant winners such as Thrivent Diversified Income Plus (AAHYX) and Timothy Plan Large/Mid-Cap Value (TLVAX) .
Do the religious screens boost returns? Not necessarily. In a study of Islamic funds, Andreas Hoepner, a researcher at the University of St. Andrews in Scotland, found that most portfolios lagged their benchmarks. According to other researchers, the average Protestant and Catholic funds have produced unexceptional results.
Still, there is no evidence that the screens hurt performance. Portfolio managers say they are able to find good stocks that survive the screens.
Instead of using their own employees to manage portfolios, many of the top-performing faith-based companies have excelled by hiring outsiders known as subadvisors. The subadvisors often work for a variety of clients, including institutional investors and wealthy individuals who don't necessarily apply religious screens.
A top fund that uses a subadvisor is the Timothy Plan Large/Mid-Cap Value, which has hired Westwood Management . Led by chairman Susan Byrne, Westwood has operated Westwood LargeCap Value (WHGLX) and other funds that focus on companies with strong cash flows and little debt.
By seeking undervalued stocks that are improving their balance sheets, Westwood has excelled in downturns. The recipe has succeeded at the Timothy Plan fund, which has returned 8.5% annually during the past 10 years, outdoing 96% of large blend peers.
The stocks in the Timothy Plan fund are similar to the holdings in other Westwood-run funds. But for the faith-based portfolio, the managers are barred from buying companies that are involved in "activities contributing to the moral decline of America."
The fund must avoid businesses that produce "anti-family entertainment" or that actively promote abortion and pornography. On its Web site, Timothy Plan provides a list of companies it has refused to own. Stocks in the Web site's "Hall of Shame" include cigarette maker Altria Group (MO) , CBS (CBS) , and casino operator MGM Resorts (MGM) .