Faith-based investing and performance: The role of screening

Faith-based investing often raises a common question from advisors and investors alike: Does screening hurt performance?

From a quantitative perspective, the main “obstacle” to faith-based investing is the screening process itself. But we believe that what some view as a constraint is actually an opportunity—an opportunity to align investments with deeply held values while still pursuing strong long-term outcomes.

At Frontier, our approach is simple: faith aligned investing comes first, performance follows. Understanding how our screening works helps explain both the unique positioning of faith-based portfolios and the performance differences that can arise relative to traditional benchmarks.

Frontier’s Screening Philosophy

Frontier’s screening process is designed to ensure that portfolios reflect Christian values. While many faith-based strategies apply basic screens, Frontier uses a more comprehensive framework that examines both revenue sources and profit allocation.

Key Screening Categories

Our process evaluates companies across several areas, including:

• Abortion
• Alcohol/Tobacco
• Entertainment
• Gambling
• Lifestyle concerns
• Pornography
• Human rights issues

These categories help ensure that investments align with values that many faith-based investors prioritize.

Revenue vs. Profit: A Deeper Level of Screening

One of the distinguishing features of Frontier’s process is that we screen companies based on both revenue and profit activity.

Revenue Screening

Revenue screening focuses on the products and services a company sells.

For example, if a company directly produces or helps produce a product or service that violates our screens (like alcohol), it would not be eligible for inclusion in the portfolio.

Promotion Screening

Promotion screening evaluates how companies use their profits, including:

• Corporate donations
• Advocacy efforts
• Partnerships and sponsorships

If a company directs a significant portion of profits toward organizations or initiatives that conflict with our values—for example, supporting certain lifestyle-related advocacy—our strategies may restrict exposure to that company.

Because we screen both what companies sell and what they fund, our process tends to be more rigorous than many other faith-based mandates.

A Smaller Investable Universe

This level of screening significantly narrows the investment universe.

In fact, many funds in the faith-based space do not pass our screening criteria. As a result, Frontier strategies operate with:

• More constraints than secular portfolios
• More constraints than many other faith-based strategies

From a portfolio optimization standpoint, additional constraints typically reduce flexibility. This is why comparing a strictly screened faith-based strategy directly to a secular benchmark can sometimes resemble comparing apples to oranges.

That said, we believe this disciplined approach provides investors with something unique: a third-party strategist that prioritizes faith aligned investing first, and performance second

Understanding Performance Differences

Recent market conditions have highlighted how screening can influence relative performance.

Two areas in particular have had a meaningful impact over the past decade.

1. Limited Exposure to the “Magnificent 7”

The group of mega-cap technology companies often referred to as the “Magnificent 7” has driven a large portion of the S&P 500’s returns since 2015.

However, most of these companies do not meet Frontier’s screening standards.

Currently:

• Nvidia is the only “Mag 7” company that any of our managers consider clean.
• Even so, several of our U.S. Large Cap managers continue to screen Nvidia out.
• Nvidia has only recently become eligible based on updated data and improvements in employee family support benefits.

Because these companies have accounted for a large share of market gains, faith-based portfolios with limited exposure naturally experienced periods of relative underperformance compared to traditional benchmarks.

This is not accidental—it is the direct result of intentional screening decisions.

Several of these companies raise concerns related to:

• Hosting infrastructure for adult content websites
• Technology platforms that can enable harmful online interactions
• Corporate spending and advocacy related to a number of other lifestyle violators
• Corporate charitable matching programs that exclude Christian organizations

For example, some corporate donation platforms rely on third-party screening systems that have labeled certain Christian organizations as “hate groups,” preventing employees from receiving donation matching benefits when supporting those charities.

These issues highlight why faith-based screening can materially affect portfolio construction.

2. Challenges in International Markets

Faith-based investing can also be more difficult in international markets, particularly within emerging markets.

China presents a clear example.

Some faith-based fund managers choose not to invest in China at all due to concerns about:

• Government control over markets
• Human rights issues
• Corporate transparency
• Labor practices

However, China has historically represented a large portion of emerging market indices. Avoiding it can create performance gaps relative to traditional benchmarks.

Even outside of China, many large international companies face similar screening issues, further reducing the available investment universe.

A Changing Market Environment

For much of the past decade, a small group of mega-cap technology companies have dominated market performance.

However, markets have recently begun to broaden.

As leadership expands beyond a narrow set of stocks, the structural headwinds faced by faith-based strategies may begin to lessen. A broader market environment often creates more opportunities for diversified strategies, including those operating with a faith-based mandate.

The Bottom Line

Faith-based investing is different by design.

Frontier’s strategies prioritize faith aligned investing first, which naturally introduces constraints relative to secular portfolios. But for many investors, the goal is not simply maximizing returns, it is ensuring their investments reflect their convictions.

Our role is to provide a disciplined process that allows investors to pursue both:

• Faith alignment
• Thoughtful long-term portfolio management

And while the path may differ from traditional benchmarks, the opportunity to invest with purpose is something we believe is worth pursuing.