By Peter Mastrantuono
Mirroring the rising popularity of socially responsible investing, there has been a growing interest among individuals in faith-based investing—an investment approach that incorporates the values and principles of a specific religion into the investment decision-making process.
Reflecting the nation’s religious diversity, faith-based funds have been created to appeal to four major religious groups: Catholic, Jewish, Protestant and Islamic.
Many of these funds, regardless of religious orientation, share certain commonalities, e.g., avoiding “sin stocks,” such as gambling, alcohol and pornography. In other instances, the stocks they exclude may be unique to that particular faith-based investment mandate. For instance, a Catholic faith-based fund may avoid stocks that support abortion, contraception or weapons of mass destruction, while an Islamic faith-based fund may avoid companies that derive a meaningful portion of income from interest payments or pork-related businesses.
These funds, however, are not just about the companies they exclude. Common to more traditional investment approaches, investment decisions are based upon a range of financial, economic and market factors, though they will incorporate an additional investment criteria screen that may include meeting faith-related standards, such as human rights, worker treatment, support for affordable housing, environmental stewardship and fair trade.
A Profile of the Faith-Based Investor
The faith-based investor is as interested in “how the money was made” as in “how much money was made.” This concern reaches across a wide spectrum of investors, from religious institutions and family foundations to pensions and individuals.
According to a 2020 survey by the Global Impact Investing Network, faith-based investor respondents (82%) predominantly pursued a divestment and negative screening to build their portfolios, though 61% also reported using ESG (Environmental, Social and Governance) criteria in their investment selection. Impact investing was considered by only a small number (11%) of surveyed faith-based investors.
Faith-Based Investment Options
For individual investors, there are a number of options that help them align their investments with their religious values.
While not a mutual fund, The Bend the Arc Community Investment Initiative (formally known as the Jewish Funds for Justice Community Investment Initiative) is a Note that seeks to lend money to support affordable housing, small businesses and community facilities in underserved communities.
Individuals interested in directing their investments into companies that reflect their personal values and beliefs should work with an experienced financial advisor who can help them choose a fund that best meets the dual objectives of doing good and reaching their financial goals.
Peter Mastrantuono is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Peter worked for over 30 years in the wealth management industry, focusing on retirement planning, investing, asset allocation and financial planning.