Mutual Funds Fit for a Pope
It's safe to say that Pope Francis isn't worried about making money in the stock market. Not only does he live modestly, he also chose to be named after St. Francis of Assisi, who spurned the good life (he was the son of a rich merchant) to be an itinerant friar in Italy.
And that's just as well because if the Pope wanted to make money, and he wanted to do so by investing in funds that follow the principles of the church, his options would be decidedly mediocre. Four firms, in fact, offer mutual funds that hew to Catholic values. The newest entrant to this Catholic subgroup of morally responsible-investment funds is SEI. But those funds, which launched in late April, are available only if you invest through an adviser.
The other fund firms -- Ave Maria, Epiphany FFV and Luther King Capital Management Aquinas, sponsor of the LKCM funds -- offer a total of 11 funds, and anyone can invest in them. The problem: The records of most of these funds are ho-hum. Ave Maria is the biggest, with five funds (three U.S. stock funds, one foreign-stock fund and one bond fund) totaling $1.6 billion in assets. The funds follow screening criteria that are set by a seven-member advisory board, whose members include Larry Kudlow, of CNBC's "The Kudlow Report," Domino's founder Thomas Monaghan and conservative activist Phyllis Schlafly. Among other things, the funds bar investment in companies that are involved in abortion or pornography.
Ave Maria Rising Dividend (AVEDX) is the firm's biggest fund, with $770 million in assets. The fund favors firms with above-average earnings and dividend growth and a history of dividend increases. It holds just 45 stocks, and only three are health-care related: drug firm Abbott Laboratories (ABT) and medical device-makers Medtronic (MDT) and St. Jude Medical (STJ). The three represent 9 percent of the fund's assets, compared with health care's 16 percent weighting in Standard & Poor's 500 stock index (^GSPC).
Rising Dividend weathered 2008 well, losing 23 percent while the S&P 500 plummeted 37 percent. That's one reason the fund's 10-year annualized return of 8.2 percent outpaces the S&P 500 by an average of 1.1 percentage point per year. But the fund's performance has been only so-so since (that same low exposure to health-care stocks is one reason). Over the past seven calendar years (including so far in 2015), Rising Dividend has lagged the typical fund in its category (funds that focus on large-company stocks with a blend of growth and value characteristics) in four years. Over the same period, the fund trailed its peer group by an average of 1.1 percentage point a year. (Unless otherwise indicated, returns are through Sept. 17.)
Epiphany FFV (for Faith and Family Values) offers three funds: Epiphany FFV Strategic Income (EPIAX), an intermediate-term bond fund; Epiphany FFV (EPVNX), a large-company U.S. stock fund; and Epiphany FFV Latin America (ELAAX), which, not surprisingly, invests in Latin American stocks. All three normally charge a 5 percent load, but you can buy Epiphany FFV at Fidelity and Schwab with no transaction fee and no load.
All of the funds invest in companies that pass the FFV scorecard test, which is a set of criteria based on the investment guidelines set by the U.S. Conference of Catholic Bishops. Unfortunately, none of the Epiphany funds is a winner. For starters, the funds charge above-average fees, with annual expenses of 1.25 percent for the bond fund, 1.5 percent for the U.S. stock fund and 1.75 percent for the Latin America fund.
The Latin America fund is the best performer of the trio on a relative basis, but that's not saying much. This fund, which was launched in March 2012, has posted an annualized loss of 11.5 percent since inception. Pretty dismal, but it's better than the typical Latin America fund's 15.4 percent annualized loss over that period.
LKCM Aquinas funds follow the U.S. Conference of Catholic Bishops investment guidelines, too. But like the Epiphany funds, the Aquinas funds also come with above-average annual fees. And their performance in recent years has been poor, relative to their peers.
LKCM Aquinas Growth (AQEGX) and LKCM Aquinas Value (AQEIX), both large-company stock funds, have three-year annualized returns of 8 and 10.01 percent, respectively, placing them behind 99 and 84 percent of their peer groups. LKCM Aquinas Small Cap (AQBLX) doesn't fare much better; its three-year annualized return of 7.3 percent ranks among the bottom 96 in the category of funds that invest in small, growing companies.
If your sole objective is to base your investments on Catholic principles, then consider some of the funds mentioned above, in particular Ave Maria Rising Dividend. But if performance and fees take precedence over faith when it comes to your portfolio, check out the Kip 25, a list of our favorite no-load mutual funds.