Monday, July 01, 2002
The Wages of Virtue-News for Christians has a piece on Christian based mutual funds. Yes, mutual funds will underperform the market due to the cost of running the fund, but they are still a good vehicle for the individual investor who doesn't want to do his own research. The common advice is to look for funds that have low expense ratios and tend to have a small portfolio turnover. Unfortunately, many of the screened mutual funds have smaller portfolios and thus have higher expense ratios. I did some unpublished research on socially-responsible mutual funds (usually having a 60s liberal worldview) while working on my Ph.D. While individual SR funds underperformed the S&P 500 on a risk-adjusted basis, a portfolio of socially-responsible mutual funds did as well as the S&P 500. While I haven't had a chance to test the newer Christian funds, I would expect that they would do as well. The smaller number of stocks in the typical SR fund might create nonsystematic risk (under-diversification), thus a portfolio of those funds might be the ticket.
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