Religious Funds: Restoring faith in financial markets. (Investing).

As many world-weary investors continue to lose faith in the stock market, faith-based mutual funds are becoming a growing presence in the investment world. In the past year, 12 religious investment funds have launched, compared to five in the same period in 2000.And, the leaders of the pack this year appear to be the newly created Catholic funds.

"What we are seeing today in the explosion of faith-based investing alternatives is Wall Street finally waking up to the fact that there are 60 million Catholics and millions of other religious Americans who want to keep their personal finances from running afoul of their religious values," said Jeffrey Petersen, president of Carlisle Social Investments.

While socially responsible investing has been a growing phenomenon during the past decade, the 60 million U.S. Catholics have lacked a fund that invests in companies screened to meet the Catholic Bishops Investment Guidelines, Petersen said. That situation changed this year with the introduction of the Carlisle Catholic U.S. Market Index representing the United States market, and the Carlisle Catholic Small Cap Index representing the U.S. small cap market.

While many socially responsible investing vehicles share the same screens as the Catholic funds, more than 77 percent of socially responsible investment portfolios would not comply with the Socially Responsible Investment Guidelines adopted by the National Conference of Catholic Bishops, Petersen said.

For example, many socially responsible investment funds might select companies that develop contraceptive drugs or devices, whereas such activities violate Catholic teachings. Other screens in the Catholic funds support companies that provide affordable housing, while avoiding those engaged in any kind of gender or racial discrimination or military spending.

To help guide it in its investment strategies, Carlisle called on Seamus P. Finn, director of social justice for the Oblates of Mary Immaculate. "He is one of the most highly respected people regarding social advocacy issues in the community," Petersen said.

Unfortunately, even people with a clear conscience might have trouble sleeping at night if their investments are losing money. But Petersen said the Catholic funds have outperformed the market when compared to the broad stock indexes.

"I think the public is finally starting to realize that they can invest according to their values and not have to give up the profit side," Petersen said. "The research shows that indexing outperforms actively managed accounts, even in a down market. Unfortunately, they don't have a crystal ball. But if your time horizon is perpetuity, you don't have to worry about the market dips."

Companies listed in the Carlisle Catholic U.S. Market Index, are those that first passed initial social screens and are included in both the Russell 3000 and S&P 1500. Companies that passed initial social screens but were excluded because they were not part of both indexes may be added to insure a broad representation of industries and more accurately reflect the market.

For the Carlisle Catholic Small Cap Index, companies that passed the initial screens and are included in both the Russell 2000 and S&P 600 are included. Both funds weighted according to the market capitalization of the companies in the indexes.

While the Catholic funds are open to individual investors, the $1 million initial stake tends to attract major institutions. The Carlisle Catholic U.S. Market Index portfolio requires $1 million and the Carlisle Catholic Small Cap Index portfolio requires $5 million. A customized index portfolio requires $10 million.

While Carlisle specializes in Catholic issues, the company has competition for the religious dollar. Among the other funds endorsed by the church's Office of Social Justice are the Calvert Group, Pax World Fund, DEVCAP Shared Return Fund, Domini Social Investments, Good Money and Co-Op America.

Take a look at the returns on those equity funds and you might run screaming to your nearest savings and loan for a certificate of deposit. Calvert Social Investments fell 14 percentage points over the year through the end of the second quarter. PAX World Fund was down 21.7 points. DEVCAP fell 16.7 and Domini Social Equity, the grand dame of social investing, dropped 19.4 percentage points. That compares to a 14.83 point decline in the S&P 500.

Things began looking up in the second quarter of 2001, however, with the Domini 400 Index growing by 5.17 percent compared to the S&P's 5.85 percent. The roughest quarter, by far, for all index funds was the first, with the Domini index falling 12.24 percent versus 11.86 percent for the S&P 500.

The collapse of the technology sector and a rash of bankruptcies in the telecommunications industry not only brought down the socially responsible indexes but threatened to spin the whole economy into a recession. So far, the U.S. economy has managed to avoid recession, defined as two consecutive quarters of declining gross domestic product.

As a tonic for the hangover brought on by irrational exuberance over the communications revolution, fund managers are now steering clients toward bond and money market investments. Those funds, once considered too boring to discuss at a cocktail party, now look like a red-hot topic.

The Calvert Income Fund, for example, posted a total return of 14.5 percent through the dismal year-long period ending April 30. That was good enough to earn a No. 3 ranking out of 150 BBB-rated Corporate Debt Funds tracked by Upper. Equally impressive was the fund's performance over the long term, with top-five rankings in every period since its inception.

While Calvert's funds are not screened specifically for Catholic investors, some of the funds come close to matching the ethics of the faithful. Calvert made headlines in 1982 by openly opposing apartheid in South Africa.

For all socially responsible investment funds, shareholder activism remains an important issue. Attend the annual shareholder meetings of any Fortune 500 company and you are almost certain to hear proposed resolutions from various religious organizations.

While some religious investors can look forward to profits with a clear conscience through screened mutual funds, others sometimes. question whether the pursuit of returns on investment conflicts with biblical teachings.

Larry Burkett, co-chief executive of Crown Financial Ministries, puts investors' minds at rest in a column for the financially oriented Web site Crosswalk.com.

"Actually, God's Word has much to say about investing, and it's always for the purpose of helping to satisfy future needs, such as educating children or supplementing income in old age," Burkett said.

Richard Williamson is a reporter for the Denver News Bureau.

RELATED ARTICLE: Where Religious And Financial Values Intersect.

When it comes to investing, most religious investors are likely to consider prophets before profits, a recent study indicates.

Three out of five religious investors, and more than half of all investors in general, rely on their religious beliefs and other personal values before sinking money into a company or mutual fund, according to a survey by Mennonite Mutual Aid (MMA) and sponsored by MMA Praxis Mutual Funds, a mutual fund designed to reflect Anabaptist Christian beliefs and values.

"There is enormous potential for growth of investing that takes into account the religious values of tens of millions of Americans," said MMA Director of Research Steve E. Bowers. "Clearly, mainstream investors, most of whom we now know are religious, see no need for there to be a 'moral disconnect' between their religious values and what they do with their money."

Entitled "Where Faith and Wall Street Intersect," MMA's report analyzes data from an Opinion Research Corporation International (ORCI) survey of 1,141 U.S. investors.

Among the key findings were:

* The vast majority of U.S. investors are religious. Just fewer than eight out of 10 (79 percent) investors describe themselves as religious or spiritual.

The only significant factor by race is among African-Americans, 90 percent of whom classify themselves as religious or spiritual. The large majority of investors identified themselves with one of three Christian traditions: Protestant, Catholic, and fundamentalist Christian.

* Most religious Americans who invest combine faith with their finances. Three out of five (62 percent) religious Americans who invest exercise their faith or personal ethical values in financial decision-making or are inclined to do so. This compares to only 33 percent of non-religious investors exhibiting a tendency to combine their personal values in their financial decision-making process.

* More than half of all U.S. investors make faith or personal values part of their financial decision-making process. More than half (56 percent) of all U.S. investors (including those who are not religious) incorporate their personal ethical values into financial decisions or are inclined to do so.

* Women are significantly more likely than men to combine religion and investing. The survey data show that nearly two out of three (63 percent) women are interested in incorporating their faith into financial decisions, compared to just under half (49 percent) of all men. Conversely, men are more likely than women to say their religious beliefs do not come into play by a margin 48 percent versus 32 percent.

* There is considerable room for further growth of religious investing alternatives. More than four out of five (81 percent) investors have not heard of religiously oriented mutual funds. However, over half (56 percent) of religious investors who currently are unaware of such funds would be at least somewhat likely to consider purchasing the financial products upon learning more about them.

* Respondents who show above average interest in religiously oriented mutual funds include those between the ages of 25 to 44 (55 percent), African-Americans (65 percent), and those with minor children in the household (57 percent).

* Religious and non-religious investors share similar outlooks on key issues. The top five corporate ethical issues -- product safety, involvement in sweatshops, environmental impact, labor relations, and equal employment opportunity -- are the same for religious and non-religious investors.

However, religious investors are somewhat more likely to avoid investments in the traditional "sin" industries (alcohol, gambling, and tobacco), as well as companies producing abortion-related products. Among religious investors, fundamentalist Christians are the most passionate about corporate ethical issues. This group differed from other religious respondents in that one of their top five ethical concerns is corporate involvement in the production of abortion products.

Most Common Screens

* Tobacco 96%

* Gambling 86%

* Alcohol 83%

* Weapons 81%

* Environment 79%

* Human Rights 43%

* Labor 38%

* Birth Control/Abortion 23%

* Animal Welfare 15%