Fever Grows for Faith-Based Funds

April 11, 2008

Author: Liz Wolgemuth

Source: U.S. News & World Report


Early last year it would have been easy to thumb your nose at a mutual fund that wouldn't touch financial stocks. Shares of firms like Lehman Brothers and Merrill Lynch were trading at about twice their current value. This year, that fund might look a bit better.

But most investors in Amana Growth and Amana Income leave their fair-weather sensibilities at the door. The Amana funds invest according to Islamic principles, and an Islamic law that bars investors from receiving interest also rules out financial stocks. Luckily for their investors, Amana's funds have cranked out major returns in multiple markets—both boast a five-year average annual return near 20 percent.

Of course, returns aren't the only reason most investors are putting their money in faith-based mutual funds, which screen companies according to religious values or interpretations of religious texts and make up a booming sector of socially responsible investing. The assets in faith-based funds grew to $17 billion last year from less than $500 million a decade earlier, according to Morningstar.