Executive Summary of CIF Study on BRI Funds Performance
The Christian Investment Forum completed a study on BRI Funds performance to further advance the knowledge of the correlation of values based investing and investment return. The purpose of this study is to review the performance of the mutual funds managed by member firms of the Christian Investment Forum (CIF) over time relative to their respective Morningstar categories. This study is not meant to identify or rate individual mutual funds or managers, or their unique approaches to Christian faith based investing (frequently described as Biblically responsible investing, or BRI). Instead, the study seeks to analyze the broader relationship between performance and the use of BRI criteria in the investment decision making process. It is the hope of the Christian Investment Forum that others may follow with additional academic research in this specific area of investing.
The use of Biblically responsible investing by CIF Members varies in the methods used and the priorities placed on each of the foundational aspects of BRI – Screening, Governance, and Advocacy. Some firms and asset managers focus mostly on exclusionary screens of the investment pool, while others use both exclusionary and inclusionary screening. Some firms also place a priority and focus on governance issues and shareholder engagement in addition to screening.
Previous research from other firms has shown that incorporating screens for social, environmental, and governance issues has a positive relationship to performance – said another way, funds that incorporate screening on average slightly outperform the market. A review of four of these research documents is included in this paper in a following section.
These cited research studies focused largely on socially responsible investing (SRI) funds and their performance relationship to the industry averages. Socially responsible investing criteria are similar to those used by faith based funds, and in fact the SRI databases usually include faith based funds in the universe studied. Thus it is reasonable to view the findings of these studies as good proxies for the performance of faith based funds relative to the industry, but the direct relationship between faith based funds and performance may be hidden within the larger universe studied.
This study by the Christian Investment Forum focused only on Christian values based investing and the funds that follow this approach. The goal was to test if this smaller segment of the broader socially responsible investing market had the same positive relationship to performance.
Based on the analysis of historical performance data from the funds managed by members of the Christian Investment Forum, the results did in fact corroborate the expectation that return performance was not reduced due to incorporating BRI, and in fact there was a general outperformance compared to the industry averages. Over the last 5 years, a composite of the returns from all of the equity mutual funds within the Christian Investment Forum outperformed the industry average by 77 basis points (bp) on an annualized basis.
This broad equity composite is an easy summary to communicate, but it lacks the specificity of individual asset classes that is more valuable for analysis and for actual implementation. Looking closer at specific categories, similar results were shown. Categories were chosen which had at least 4 CIF funds in order to reduce individual fund overweighting of results. In the Mid-Cap Growth category, the CIF funds composite outperformed the industry average 11.89% versus 9.21% on an annualized average return basis. For the Large Blend category, the CIF Funds had a composite return of 8.87% compared to the average of 7.16%. In the Intermediate-Term Bond category, the returns were very close, with a slight edge to the CIF Fund composite – 4.26% to 4.04% for the industry average.
Following the review of other Academic Research, we provide the details of the results for each asset class listed in the above chart – Mid-Cap Growth, Large Blend, and Intermediate-Term Bond.
In conclusion, the results of the prior research and this study of funds from CIF Member Firms reinforces what has been communicated by CIF on the advantages of BRI and the competitive performance of portfolio managers from firms in the Christian Investment Forum. More research is warranted to further what has been done to date, and as longer time periods become available to analyze. As is frequently pointed out, historical results are not predictive of future performance. This is also true for perceptions or expectations of under-performance for BRI funds based on some prior experience. With this study and others, we hope to re-engage with investors and advisors so they can review the current performance results of these BRI funds relative to the industry.
The results of this analysis are not meant to suggest that BRI funds will result in outperformance. The most important reason to incorporate BRI funds into an overall investment portfolio is to better align investments with an investor’s values. For investors and their advisors, considering funds that can align with their Christian faith need not be a choice between values and performance.
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