So-called socially responsible investing funds, which buy only the sort of stocks that the Volvo-driving, soy-cappuccino-sipping liberal elite approves of, are everywhere these days. According to Lipper, the mutual-fund-tracking service, 199 SRI funds today manage $21.6 billion, up from 88 funds with $12.9 billion in 1999. The very names of the stocks these funds own--Horizon Organic, Nature's Sunshine, Peoples Energy and Progressive Corp.--would give a Berkeley sociology professor the warm fuzzies.
Another kind of SRI fund, however, is in the news. Last week Wal-Mart said it will suspend sales of several men's magazines, including Maxim, FHM and Stuff (see Essay). Officially, the retailing giant pulled the plug after "customers around the country" complained that the boobs-and-booze monthlies made them "uncomfortable." In fact, the move came after a grass-roots campaign orchestrated largely by a mutual-fund manager.
He is Arthur Ally, 61, president of the Timothy Plan, a group of eight "biblically based, pro-life, pro-family" funds. Based in Winter Park, Fla., and founded in 1994, Timothy has about $150 million in assets and roughly 12,000 shareholders. Ally will invest in no firm he feels is involved in promoting or financing abortion, pornography or "the homosexual agenda." He also shuns alcohol, tobacco and gaming stocks. (Military contractors are O.K.; even the Prince of Peace, says Ally, believed in self-defense.)
But now, Ally is edging into activism. After his complaints about "pornographic" covers of Cosmopolitan failed to get the magazine banned from Wal-Mart, Ally sold Timothy's 9,200 shares of Wal-Mart stock. Then he banded together with several other Christian groups, including the American Decency Association and the Family Research Council, to petition Wal-Mart.
The nixing of Maxim is Ally's first victory in what may be a long crusade. "We're starting with Wal-Mart," he says. "They're not our only target. We want to try to slow down this slide into the moral abyss that America is on."
Ally concedes that Timothy will own companies that "are not wholly righteous," such as Dell, which provides benefits to gay partners of employees. But Ally avoids "those that are pursuing an unholy agenda," including, he says, AOL Time Warner (TIME's parent company) and Disney, which create "antifamily entertainment" and support "nonmarried lifestyles."
Bible-based investing may be as good for the evangelical soul as it is repugnant to the secular-humanist spirit. But is it good for the wallet? Timothy's Small Cap Value fund has gained about 0.4% annually over the past three years, while its Large/Mid-Cap Value is down an annual average of only about 1%. Those returns place both funds far ahead of the overall market and most funds in their categories.
I think Timothy's outperformance has come mostly from avoiding media stocks--which, as we AOL shareholders know all too well, have stunk since 2000. That approach may not pay off so well in the years ahead. The more stocks a fund manager rules out on nonfinancial grounds, the harder it becomes to generate strong returns. I would advise investors to bear in mind a few things about any fund that picks stocks on ethical criteria: