Slate's Moneybox: Mutual Fund Vice and Virtue
MADELEINE BRAND, host:
I'm Madeleine Brand, and this is DAY TO DAY.
When it comes to investing, the market is supposed to be amoral; it doesn't care about your beliefs or habits. But just as morality and faith have taken a larger role in American life, they're also playing an increasingly prominent role in investing. And to find out if investing in virtue is a good idea for your wallet, we turn to Daniel Gross, who writes the Moneybox column for the online magazine Slate.
And, Dan, tell us what exactly is virtuous investing.
DANIEL GROSS reporting:
What we've seen, as investing has developed, mutual funds have proliferated, all kinds of funds have developed that allow people to invest according to their world view. The socially responsible funds were appealing to people who were sort of progressive, largely secular, interested in issues like the environment, child labor, nuclear weapons, things like that. What we've seen in more recent years, especially with this group I write about, is an alignment of investing philosophy with religious philosophy. There's a family of mutual funds called the Ave Maria Mutual Funds that invests on what they call Catholic principles, and it's actually been doing quite well in attracting a large amount of assets.
BRAND: Catholic principles--and so what would that entail?
GROSS: They invest from a Catholic perspective, and that doesn't mean finding companies that make Communion wafers. They look first for stocks that meet the financial criteria set by the portfolio manager. But it has a team of people, a Catholic advisory board, that then look through companies and eliminates ones that are connected with abortion, that are connected with pornography, that make donations to Planned Parenthood or whose policies undermine marriage, as they put it. So companies that offered benefits to domestic partners are automatically kicked out of this fund. About 40 percent of the Standard & Poor's 500, which is one of the leading indexes--40 percent of the companies in that index currently offer such benefits, so they're immediately not available for selection in these funds.
BRAND: So--and you're saying that this Catholic fund, this Ave Maria Fund, and other similar funds are doing pretty well?
GROSS: Over the last three or four years Ave Maria Funds have generally outperformed the market by a substantial amount.
BRAND: And why is that?
GROSS: Their selection criteria had them leave out a lot of very large companies, like Citigroup, Microsoft, Dell, a lot of technology companies, a lot of finance companies, a lot of companies in media because these were precisely the kinds of companies that were most likely to offer domestic partnership benefits. And these were the sectors that, after the boom of the '90s, have really been struggling for the last several years.
BRAND: Let's talk about the devil and investing in companies such as tobacco companies or gambling companies, companies associated with vice.
GROSS: They say on Wall Street there are two sides to every trade; whenever somebody is buying, somebody else is selling. So if somebody is buying virtue, somebody else has to be selling vice. There is a fund that started a couple years ago called the Vice Fund, and it takes the opposite view. It recognizes that humans are fallible, that they are prone to sin and engage in behavior that is potentially destructive, and they're looking to capitalize on that. The Vice Fund, which is, at this point, a very small fund, invests primarily in defense stocks--I guess war being a vice--in tobacco, gambling and alcohol stocks, trying to find companies that profit from people's vice. And, ironically, like the virtue funds, it has been doing remarkably well since it got started. It's outperformed the market in its lifetime.
BRAND: Daniel Gross writes the Moneybox column for our online partners at Slate. Thanks a lot, Dan.
GROSS: Thank you.
BRAND: DAY TO DAY returns in a moment. I'm Madeleine Brand. Transcript provided by NPR, Copyright NPR.