Faith in finance

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This article was published 23/09/2023 (755 days ago), so information in it may no longer be current.

Finance inevitably involves a little faith.

We have faith, for example, that the money we earn can be exchanged for goods and services, and we have faith our investments will grow over time to support our retirement, families and communities.

Yet some investors also seek to infuse their faith — religious beliefs — into their finances.

Faith-based investing is not new.

Responsible or ethical investing and ESG (environmental, social and governance) have their origins in faith-based investor activism — which has a long history of avoiding companies involved in weapons, alcohol, tobacco, pornography and gambling, often referred to as ‘sin stocks.’

Today, however, responsible investing is mostly a secular approach, which can leave some people of faith feeling left out, says Glenn Murray, president and chief investment officer with Capstone Asset Management in Vancouver, which has offered Christian-aligned investments for nearly 20 years.

“There are certain things we know our clients are not going to be interested in,” he says, noting that can include investing in companies that may not respect the “dignity of all human life” as well as those aforementioned sin stocks.

Recently, Capstone launched a portfolio strategy specifically built around the growing field of biblically responsible investing (BRI), which is a much bigger thing in the U.S. where conservative Christian values play a larger role in American life, he adds.

Capstone’s goal is to offer the strategy eventually as an exchange-traded fund (ETF), making it widely accessible to Canadians whose values may align with its values-based approach.

“There just aren’t options, and part of the reason we’re looking to launch an ETF is to help with that,” he says.

But it’s not just Christians seeking to align their beliefs with their money.

Many Canadians of different religious backgrounds seek to do so too, including Muslims who have a handful of choices for what’s often called ‘halal investing.’

One of the more high-profile offerings is Manzil — which since 2020, has offered a robo-adviser platform for individuals interested in halal investment and finance.

In May, Manzil launched the OneVest Halal Equity Fund.

“We wanted to differentiate ourselves because, with a lot of the halal ETFs out there, there is debate regarding how strict they are,” says Dr. Mohamad Sawwaf, PhD, the Toronto-based, chief executive officer and founder of Manzil, Halal Financing and Investing Solutions.

The Manzil fund leans toward the conservative side — at least from a Sharia-compliance perspective, he adds.

In turn, it screens out companies with significant exposure to prohibited sectors among other impermissible activities, including the sale and production of pork.

That said, it does permit investing in companies like hotel chains, for example, “as long as the pork and alcohol being served generates less than five per cent of their income,” he says, noting other halal funds may have higher thresholds for revenues from these activities.

Another screen for the fund, and halal investing in general, is limiting exposure to debt.

Companies cannot carry too much debt, nor can they earn too much interest from debt.

Earning and paying interest on loans are generally impermissible in Islam, he adds.

This prohibition can be problematic in finance, which is largely founded on lending and borrowing, he says.

“In the past Muslims were either sitting in cash or investing in equities” with no fixed income options, leaving them exposed to inflation and volatility risks, Sawwaf says.

At the same time, observant Muslims seeking to purchase a home had to wrestle with their beliefs if they chose to get a traditional mortgage.

To solve this, Manzil has developed a fixed income fund — the Manzil Halal Mortgage Fund — allowing investors to own units of the fund in exchange for distributions that offer fixed-income-like yields.

At the same time, the fund offers Muslims and other Canadians the ability to purchase a home without borrowing money and paying interest.

The investors in the fund are like ‘silent partners” in the properties, receiving a fairly consistent payment stream, Sawwaf says.

“And then there are the fund partners themselves, the homeowners, who make the payments to the fund, get to live in the homes, renovate them, and even rent them out.”

After the homeowning investors purchase the agreed upon fund unit, they will own the property outright, he adds.

For investors, the investment works like a bond fund with a steady yield and low volatility, except they are limited partners sharing in the risk of the investment with the homeowners. That shared-risk component makes the fund sharia compliant, he says, adding their current yield after fees is about six per cent.

Broadly speaking, faith-based investing often entails wrestling with seemingly irreconcilable differences between religious beliefs and capitalism, and everyone comes at it differently, says certified financial planner (CFP) Ian Wood with Cardinal Capital Management Inc. in Winnipeg.

“It is very individualized — bringing up questions like ‘what do you mean by faith-based?’”

Even for Wood himself, wrestling with his faith comes with the territory.

He previously had a Certified Kingdom Advisor (CKA) credential, denoting expertise in biblically responsible investing.

But he eventually dropped the designation given it, like so many other credentials, involves annual fees.

Carrying all of them is costly, and the CKA designation typically resonates less with clients than a CFP or for discretionary portfolio management, a CIM (chartered investment manager).

What’s more, most people with religious beliefs do not wrestle much over whether their investments align with their faith — though most do not want to invest in ‘sin stocks,’ he says.

“But few advisors and funds (faith-based or not) actually invest in those,” Wood notes.

That said, the growing faith-based choices in Canada are welcome all the same, he adds.

“I’m glad more products are out there so, at the very least, people have that choice.”