Biblically Responsible Investing
At LORAN GRAHAM Co., we specialize in a rapidly growing area known as Faith-based Investing or Biblically Responsible Investing (abbreviated “BRI”). BRI seeks to help investors align their investment choices to biblical values in a spirit of love and compassion, by avoiding companies that profit from activities that are not honoring to God or that cause harm to their neighbor.
Have you ever considered your values when selecting investments?
More and more people are choosing to align their investment strategies with their values, and the broad category of "Sustainable, Responsible and Impact Investing" (SRI) now represents over 18% of managed money around the world, according to the 2014 Report on US SRI Trends published by US Social Investment Forum. SRI is accelerating from a method of investing to a movement. The same 2014 report highlighted that total US assets under management using SRI strategies has expanded from $3.74 trillion at the start of 2012 to $6.57 trillion at the start of 2014.
What is Screened?
In many ways, BRI and SRI are closely related to each other. Common areas of focus for both approaches seek to avoid investment in companies whose products or services:
- Feed on the addictions and weaknesses of others (i.e. alcohol, tobacco, and gambling).
- Take advantage of the poor (i.e. pay-day loan centers at usurious interest rates).
- Violate human rights or are degrading to women (i.e. human trafficking, pornography).
- Demonstrate poor environmental stewardship (i.e. unsustainable practices).
Naturally, BRI adds some issues that SRI does not address, because its screens are based on biblical principles rather than on prevailing social attitudes. For example, BRI seeks to avoid investment in the abortion industry, including pharmaceutical companies that manufacture abortifacients and companies that contribute donations to Planned Parenthood. Another difference is in the area of environmental stewardship. While SRI may avoid the energy sector entirely, BRI allows for investment in natural resources such as energy, timber, and mining companies that demonstrate sustainable harvesting practices and good stewardship of the earth. (see Psalm 24:1).
While there are some differences between SRI and BRI, it is interesting that many of the biblically based screens have also been identified by SRI as harmful to society, resulting in the overlap. For this reason, BRI and faith-based investing are generally considered to be a subset under the broad umbrella of "socially responsible" investment options.
For the Christian believer who is striving to honor God in every area of life – including relationships, business ethics, and personal finances – BRI creates an opportunity to make how we invest and save for the future an extension of our ongoing, vital act of daily worship (see 1 Corinthians 10:31).
How BRI Works
Investment managers who implement BRI are looking for great investments, just like any other investment manager.* The difference is simply that BRI managers add an extra layer of due diligence to their research process, by running moral “background checks”—that is, using BRI databases to screen for moral issues based on biblical values.
What about Performance?
Loran Graham Co. is committed to excellence in Biblically Responsible Investing. We aim for the highest returns for each client's individual needs, risk tolerance and objectives, while at the same time seeking to make a positive impact in the world. We believe it is entirely possible to adopt the BRI framework within a well-diversified portfolio designed to help clients address their individual needs, risk tolerance, and future goals.
Empirical studies have shown that more than 90 percent of a portfolio's returns comes from the asset allocation decision, according to "Determinants of Portfolio Performance II: an Update, "Bringson, Singer, & Beebower, Financial Analysts Journal, May/June 1991.
In other words, overall performance depends primarily on the decision about how much to allocate to each asset class (i.e. U.S. stocks and foreign stocks versus bonds). For the asset allocation decision, we rely on the power of LPL Research, one of the largest independent research organizations in the industry. We then combine that research with our firm's specialty research in the area of BRI, and select BRI fund managers to invest in each asset class.
Of course, past performance is not a guarantee of future results, and there is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. For social, moral, and faith based investments, returns may be lower than if the investor made decisions based solely on other investment considerations, but they could also be higher.
Several independent studies suggest that there is no statistical difference between passive benchmarks and the same benchmarks filtered for values. For example, in a recent study, “The Wages of Social Responsibility,” Meir Statman and Denys Glushkov analyzed the returns of stocks rated by social responsibility over a fifteen-year period (1992-2007). This study found that tilting a portfolio toward stocks that were rated highly on such socially responsible characteristics as community, environment, and employee relations provided an advantage over conventional investors. This advantage was largely offset by excluding stocks in sectors such as tobacco, alcohol, gambling, and weapons. The net effect was no material impact. In a 2011 study, “Socially Screened Portfolios: An Attribution Analysis of Relative Performance,” Lloyd Kurtz and Dan BiBartolomeo statistically analyzed the performance of the KLD 400 Social Index2 relative to the S&P 500 Index1 from 1992 to 2010. The authors determined that any performance differences are fully explained by conventional investment factors. According to the authors, “General assumptions of reduced return are wrong and investors do not sacrifice long-term returns when pursuing corporate social responsibility."
In summary, the primary drivers of performance for BRI fund managers are not very different from that of other non-BRI fund managers. What primarily drives performance is the talent of the underlying fund manager, and keeping an eye on expenses. Many of the BRI fund managers we work with have earned 4-star and 5-star rankings on Morningstar, and several fund managers have been awarded the Lipper award by Wall Street. Of course, past performance is not a guarantee of future results, and rankings may change from year-to-year.1
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
2The MSCI KLD 400 Social Index comprises companies with high Environmental, Social and Governance (ESG) ratings and excludes companies involved in Alcohol, Gambling, Tobacco, Military Weapons, Civilian Firearms, Nuclear Power, Adult Entertainment, and Genetically Modified Organisms (GMO). The Index aims to serve as a benchmark for investors whose objectives include owning companies with very high ESG ratings and avoiding companies that are incompatible with specific values-based criteria. Launched in May 1990 as the Domini 400 Social Index, it is one of the first Socially Responsible Investing (SRI) indexes. Constituent selection is based on data from MSCI ESG Research.
*Indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
Complimentary Moral Review of your Investments
If our mission and vision resonate with you and you would like to learn more about aligning your investment choices to your values, we invite you to contact us. We offer a complimentary initial consultation appointment and moral review of your current investment holdings. (See also the Screen-It Clean-It PDF attachment below.) To request your complimentary initial consultation appointment, click here, or simply call us at (509) 279-0970.