Investing 11 Jan 2007 09:50 pm

Making Money the Catholic Way

by Sean Hackbarth

Ave Maria logo

For you good Catholic investors check out the Ave Maria Growth Fund (AVEGX). James Bashaw, manager of the socially responsible mutual fund, combs through the numbers of companies that don’t do business in contraceptives and pornography and has turned above-market returns:

Avoiding companies that don’t comport with church teachings, he says, provides a foundation. “But it doesn’t tell you which non-offending companies to choose.”

Accordingly, Bashaw likes companies with the potential to provide promising returns over a three-year period, based on factors including historical earnings growth, return on equity and price to earnings ratio. He chooses attractive securities from a 200-stock pool, with 37 stocks now in the portfolio.

Started in May 2003, the no-load fund gained 15.1% in the 12 months through Dec. 29, versus 12.8% average return for peers in its Multi-Cap Core category, according to fund tracker Lipper Inc. Its 12.2% annualized three-year return also compares favorably to its category’s 10.3% gain.

Professor Stephen Bainbridge, a Catholic, isn’t a big fan of these investments:

As an investor, I’m skeptical. In the first place, actively managed funds tend to underperform the market over time. One reason for that performance gap is that high fees actively managed funds tend to charge. Another is that even star active managers make investment mistakes. In faith-based investing, you’re adding additional expenses – to pay for the screening of investments to ensure consistency with your values – and you’re blocking off whole industry sectors (e.g., defense or tobacco), which means your portfolio inherently will be less well-balanced and less well-diversified than a broad market index fund. Taken together, there’s reason to think faith-based funds likely will underperform the market over time.


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