Does God Have a Place in Your Portfolio?

A growing number of ETFs and mutual funds attempt to appeal to religious investors

FaithShares’ ETFs could appeal to someone like 26-year-old Grant T. Harris of Washington, D.C. Harris does his own research into companies whose stock he holds. “I only invest in companies that I feel are ethically and morally sound,” says the management and image consultant, who describes himself as a devout Christian. “And I don’t invest in anything that expressly goes against my core Christian beliefs and values.” Harris finds the new Christian investment products intriguing, but he’d like to see them develop more of a track record before he invests.

Should faith figure into the equation? Investing with a conscience can make you feel good, but what does it do for your retirement account? One positive aspect of faith-based investing, says Nathan Mersereau, president of Planning Alternatives in Bloomfield Hills, Michigan, is that people could be more motivated to save when they have investments that represent their belief system.

For most investors, though, it’s all about performance. Essentially, experts say investors should expect faith-based investing returns to mirror those of socially responsible funds. Last year happened to be a great one for socially responsible investing, or SRI. From Dec. 31, 2008 through Dec. 31, 2009, the Dow Jones industrial average rose 18%. SRI funds jumped more than 35% over the same period, observes Richard Dziak, vice president and investment officer with Wells Fargo Advisors L.L.C.

Steve Schueth, president of First Affirmative Financial Network L.L.C., which specializes in SRI, believes that with 2009’s returns “the myth has been dispelled that if you do good you have to take a lower return. There is no reason to expect underperformance.” Faith-based investors can expect returns similar to those of socially responsible investors because the companies held in both types of portfolios are likely to be the same. For example, FaithShares has about 85 to 90 recognizable names in its mix, including stakes in Google, Starbucks, Southwest Airlines, and Microsoft.

Despite their recent performance, there’s one glaring downside to faith-based and socially responsible investing: fees and expenses. “On average, the expenses will be more than [the average fund] because of the deeper and different research involved. Analysts are looking at a company’s policies, culture, and behavior, for example,” says Schueth. The truth is, says David Kathman, mutual fund analyst at Morningstar, “If it’s important to you to invest this way, then that’s the price you pay.”

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