Putting Their Faith in Investment Choices

In times like these, investors pray--and not just because their returns have gone south.

Personal faith has emerged as a factor in many Americans’ investment decisions, influencing how they pick mutual funds and view shareholder issues such as sweatshop labor and corporate environmental policies, according to a survey released Wednesday.

“Many in the financial world mistakenly see religion and values mixing with investing only for a small niche of investors,” said John L. Liechty, president of MMA Praxis, an Indiana-based mutual fund company that caters to Anabaptists and was a co-sponsor of the survey.

“This survey reveals that religion and ethical issues are cutting a much wider swath across investing than previously was understood.”

Of the more than 1,000 individual investors surveyed nationwide by Opinion Research International in late June, 36% said they incorporated their faith with their finances at least part of the time. An additional 20% said they would do so if they knew how.

Of the 79% of respondents who described themselves as “religious or spiritual,” the connection was even greater. Of this group, 62% either apply their religious principles to their investment decisions or would like to, the survey found.

Still, religious-oriented mutual funds account for only a tiny fraction of the money deposited in mutual funds, Liechty said.

That may be explained partly by the fact that four out of five survey respondents said they didn’t know religious-oriented mutual funds existed. The majority of these investors--56%--said they would be inclined to invest in religious funds once they learned more about them, according to the survey. The mutual fund industry’s biggest players are not in this market, Liechty added.

“There just isn’t the plethora of options available for religious investors as there are to secular investors,” he said.

The number of mutual funds that cater to religious investors has grown in the last decade. But there are still just 43 such funds, compared with more than 15,573 open-end mutual funds in the U.S., according to Lipper Inc., a New York-based investment research company. Religious funds account for less than 5% of total mutual-fund assets.

Religious funds are a breed of so-called socially responsible mutual funds. Socially responsible funds avoid investing in companies that have poor environmental records or that sell products such as alcohol, weapons or tobacco. Many funds also screen for employment policies, preferring companies that offer equal opportunities to women and minorities and those that don’t hire sweatshop labor.

Religious funds make investment decisions based on issues that tend to be tied to religious beliefs, such as abortion and gambling.

Investment pros once believed that using socially responsible screens hurt investment returns. But academic studies have put that concern to rest, investment professionals maintain.

Socially responsible funds perform about as well over the long term as stock funds in general, according to Lipper. However, over shorter periods, they may do better or worse than the market as a whole, depending on what industry sectors are in and out of favor, said Don Cassidy, senior research analyst.

For instance, when tobacco and defense stocks are out of favor, socially screened funds that don’t invest in these industries may do better than the market as a whole, and vice versa.

Some longtime Wall Street executives were surprised by the survey’s finding that a significant percentage of individuals are interested in combining religion and investing. But a segment of the investing public always has based some decisions on their personal values and beliefs.

“Raytheon used to be managed by a born-again Christian, and we had people investing in that company for only that reason,” said Hugh Johnson, chief investment officer at First Albany Corp. in New York. “They did quite well, I might add.”

It’s unclear whether the market’s 18-month slide has encouraged faith-oriented investing. Studies of the issue are scarce, so it’s hard to discern a trend. But Liechty thinks future studies will show Americans are making a long-term commitment to linking their religious beliefs to their investment decisions.

However, Johnson said, there are few atheists in the foxholes.

“I know I’m praying, and praying hard, for my portfolio. I think praying may work better than research.”