With church donations declining, many churches are looking to invest their funds to generate additional income. When evaluating church investment funds, there are several key factors to consider including fund objectives, historical performance, fees, and investment philosophy. The fund’s objectives should align with the church’s mission and values. Look at the types of companies and sectors the fund invests in. Historical performance over 5-10 years can gauge the fund’s ability to generate returns in different market environments. Expense ratios and other fees can significantly impact net returns so lower is generally better. The fund’s investment philosophy such as active vs passive management is another consideration. Conducting thorough due diligence and consulting with financial advisors is prudent before making any investment decisions.
Evaluate how fund objectives align with church mission and values
As a non-profit organization, a church has a special obligation to invest in alignment with its beliefs and social principles. Review the types of securities the fund invests in to avoid companies engaged in activities that may conflict with the church’s mission. For example, funds focused on sin stocks or fossil fuel companies would likely not be a good fit for most churches. Look for funds that invest in companies making positive contributions to society and exclude objectionable industries. Funds with ESG mandates may be more suitable for churches seeking social responsibility.
Analyze historical performance across market cycles
While past performance is no guarantee of future returns, a fund’s long-term historical performance can demonstrate its ability to generate consistent risk-adjusted returns over full market cycles. Preferably look for at least a 10 year track record. For equity funds, compare returns to appropriate benchmarks. Examine periods of market declines – did the fund lose less than the market? For fixed income, look for steady returns exceeding bond index benchmarks. Beware of new funds with limited history. The church’s time horizon for the investments should also be considered when evaluating historical returns.
Minimize expense ratios and other fees
Investment fees directly reduce net returns so are an important consideration in fund selection. Passively managed index funds tend to have lower expense ratios compared to actively managed funds. However, some active funds have competitive fees and may be worth the higher expenses if they consistently outperform. Other fees like sales loads and redemption fees should also be minimized. Consult the fund prospectus to understand all expenses charged. Professional financial advice may be warranted if evaluating complex fund fee structures.
Evaluate investment philosophy and fund management
Understand the fund’s investment philosophy and how portfolio decisions are made. Actively managed funds rely on security selection by managers while passive index funds aim to match market returns. Active share indicates what percentage of the portfolio differs from the benchmark. Higher active share suggests more active management but does not guarantee outperformance. Research the tenure and track record of fund managers to determine their competence. For index funds, the replication methodology used to track the index is important.
When selecting investment funds for a church, carefully evaluate how fund objectives align with the church’s mission, analyze historical long-term performance across market environments, minimize fees, and research the fund’s investment philosophy and management. Prudent fund due diligence helps ensure church assets are invested responsibly.