Faith driven investing, also known as values-based or ethical investing, incorporates religious or moral beliefs into investment decisions. Investors seek to align their portfolios with their faith and avoid companies engaged in activities considered objectionable or immoral. Common restricted sectors include gambling, tobacco, alcohol, adult entertainment, and weapons manufacturing. Faith driven investors employ strategies like negative screening to exclude stocks that conflict with their values. Investing according to religious or ethical guidelines often requires research to identify permissible investments. Faith driven funds offer a more passive approach, providing investors exposure to faith-aligned companies. While faith driven investing may limit opportunities, proponents argue it allows directing capital in line with personal convictions while still pursuing financial objectives.
Negative screening to avoid objectionable stocks is a key faith driven strategy
Many faith driven investors use negative or exclusionary screening to avoid investing in companies that conflict with their values. For instance, Islamic finance prohibits investments related to gambling, alcohol, tobacco, pork, and interest-based financial services. Catholic investors may screen out birth control manufacturers and abortion providers. Negative screening can be strict, eliminating whole industries, or more limited by only excluding specific revenue thresholds or business practices. Investors should be aware that even with negative screening, there may still be some indirect exposure to restricted sectors through diversified holdings.
Faith driven investors need to conduct research on stock suitability
Faith driven investing often requires significant research as investors must determine if a company’s products, policies, and practices align with their faith and morals. For individual stocks, investors may analyze financial reports, news, values statements, and controversies. However, comprehensive stock research can be challenging, especially for small investors. Faith driven mutual funds and ETFs can provide a more passive approach. These funds employ full-time analysts to assess company suitability for faith driven investors. Overall, values-based investors should utilize available faith driven fund screenings when possible rather than rely solely on individual stock research.
Faith driven funds allow simpler implementation for values aligning
Faith driven or religious mutual funds and ETFs facilitate simpler implementation of values-based investing. These funds provide diversified exposure to stocks which pass faith-based screening criteria. Major fund providers offer specific options targeted towards Christian, Catholic, Islamic, and Jewish investors. For instance, Amana Mutual Funds invests according to Islamic principles. The PAX World Funds incorporate environmental and social justice concerns important for many Christian investors. And the Inspire Global Hope ETF (BLES) uses Christian screens. Faith driven funds have different emphases based on their faith guidelines. Investors should analyze the screening specifics to confirm alignment with their beliefs.
Performance of faith driven investing may trail broader market opportunities
By limiting the investment universe, faith driven investing necessarily excludes some market opportunities which may outperform. Studies find values-based funds tend to lag benchmarks by a small but persistent margin over time. However, investors may accept slightly lower returns to align their capital with religious beliefs. And fund providers argue taking a long-term ethical view properly prices risk and can lead to competitive returns. Either way, faith driven investors should have realistic performance expectations compared to unconstrained peers. Values-based investing seeks principal alignment over raw returns.
Faith driven investing incorporates religious and ethical principles to align capital allocation with an investor’s moral convictions. Values-based investors employ negative screens and conduct research to avoid objectionable companies. Faith driven mutual funds and ETFs allow simpler implementation. While faith driven investing can trail benchmarks, it allows directing investments in line with beliefs.