20 Oct 2022
Considering values and valuations
For all the wealth that the financial markets can create for long-term investors, there is one thing that I think has been lost: The idea of investing as ownership. Originally, many investors viewed their shares as a piece of the company, and they felt some connection to the company’s successes and failures that went beyond stock gains and losses.
For people who seek to live their lives in accordance with their faith, taking some kind of “ownership” for their investments is an important step. With the rise of new faith-based investment strategies that use modern investing approaches, it’s possible to let beliefs and values serve as a guide for investing for more people, without the extra effort and expense of hand-selecting stocks that was once the only way to pursue a faith-based strategy.
What forms “faith-based” investing can take
While by no means comprehensive, the following considerations can help investors start to explore the faith-based opportunities available today.
- Exclusionary screening: This is what most people think of first – purposefully not investing in companies in certain industries, such as tobacco, pornography, gambling, or other things that might fall under the heading of “vice.”
- Investing for purpose: If screening out avoids the bad, this approach supports the good. It could be medical research battling disease, taking steps to combat hunger, or supporting local communities. Many “impact investments” specifically target such goals.
- Sorting through the acronyms: Faith-based investing is a subset of what would be called “values-based investing.” Within this category you may hear about ESG (Environmental, Social, and Governance), SRI (Socially Responsible Investing), BRI (Biblically Responsible Investing) and many other subsets. Unfortunately, it’s easier to slap a label on a fund than do the work to make it align with specific values. Ask to see what is in a fund and how those investments are
- Balancing values and return: At the end of the day, advisors also have a fiduciary responsibility to their clients, and fund managers and asset managers recognize this. There are ways to help maximize return, but you always need to understand any potential tradeoff and how a manager addresses risk and return.
Why faith-based investing is important to advisors
In an industry that is dominated by big names and a focus on returns, offering a faith-based option can help advisors differentiate their business. Faith is a deeply personal matter, as is money. The intersection of the two is an area where a real live person can engage an investor far better than an automated report.
Additionally, faith-based investing can open doors to other conversations, such as planning for charitable giving and leaving a legacy. The conversation can change from “How much can I keep?” to “How much can I give?”
It comes back to ownership – owning a company, owning a set of values, owning the effects of your investments, and owning up to your beliefs.
Faith-based investing is a deeply personal decision, and it won’t be right for every investor. But in a world where people can and do rationalize almost anything when it comes to their money, I think it’s better to give people options that allow them to be thoughtful, deliberate, and purposeful with their worldly wealth.
Nothing presented herein is or is intended to constitute investment advice or recommendations to buy or sell any types of securities and no investment decision should be made based solely on information provided herein. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for an investor’s financial situation or risk tolerance. Diversification and asset allocation do not ensure a profit or protect against a loss. All performance results should be considered in light of the market and economic conditions that prevailed at the time those results were generated. Before investing, consider investment objectives, risks, fees and expenses. Frontier may modify its process, opinions and assumptions at any time without notice as data is analyzed.
We manage our Faith Based strategies with ESG constraints determined by Frontier. We utilize data and screens from third-party service providers in connection with applying the constraints. Faith Based strategies are subject to ESG guidelines and restrictions and could underperform accounts invested in a similar strategy without the same restrictions because the ESG guidelines can force a portfolio manager to avoid or liquidate a well-performing security because it does not meet the ESG criteria.
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