Values-based investing has gained traction in the fund industry. One fund provider brings a faith-based layer to that approach, and has found market and peer success doing so.
Dallas-based GuideStone Financial Resources has been investing for retired Southern Baptist ministers and mission workers since 1918, but its GuideStone Funds arm only launched in 2001.
Those investments now represent over $10 billion in assets and 31 mutual funds open to a wider investor base that share the same values, says GuideStone Funds President John Jones. The firm's adherence to principles has won it industry awards too: its Extended-Duration Bond Fund received the 2015 Lipper Fund Awards for "Best Fund Over 3 Years" as well as "Best Fund Over 5 Years."
In an interview, Jones and Ron Dugan, the firm's vice president, explain how it markets funds with Christian values, and integrates the firm's moral core into its operations and customer service.
Why reach for a wider customer base?
Jones: What brings us to this juncture is kind of a combination of momentum. [In] 2008, as all of us are aware, [we were] coming out of the financial crisis. There was a crisis of confidence and trust on the part of the investing public.
One of the hallmarks of GuideStone Funds is our integrity. Our value proposition, now having the nation's largest Christian screen mutual fund complex diversified across the globe, having 31 funds to fit any investor's needs.
So, it was the '08 financial crisis and more people looking to - who is investing my money, what about their integrity and trust and how are they investing my money?
There's more interest in screened funds. Well, there's a lot under that SRI (socially responsible investing) umbrella. We have established what we think is a real niche where we have demonstrated our ability to show that one can invest based upon their values and not sacrifice performance. It's a common misperception out there that if you are investing in an SRI type of fund there is a resulting give-up in the actual performance.
It was interesting being here in New York with people asking who are GuideStone Funds? They were a Christian-based screen fund and we are winning awards. So it's this culmination of the interest in investing their values while at the same time being able to generate excessive return.
As we've gotten more recognition, we get unsolicited e-mails, phone calls from consultants that are looking for viable investment solutions for our clients and so forth. A GuideStone Fund will pop up on their screen: GuideStone Global Bond Fund. Well, who is this GuideStone?
So it has become abundantly clear we're at a juncture where we have a phenomenal opportunity to open our funds to the broader investing public.
Are you saying then that you set yourself better standard than a BlackRock or Vanguard because you are answering to a higher power?
Dugan: I would take it from the standpoint that we are operating on the same level as everybody else in this particular field, but our purpose is one that we want to adhere to our core Christian values and reach out to other like-minded investors that are seeking this type of investment vehicle or this type of fund family to invest their personal or their retirement assets in.
Jones: All of us come out of the for-profit world and there, the focus was quarterly earnings, top line, bottom line and so forth. At GuideStone, our total focus is on the investor and what we are doing to generate excess return on appropriate risk basis, based on our Christian beliefs and values.
So, each and every day, our focus is not on some corporation's bottom line, it is on that investor's bottom line and what we are doing to enhance the return. So there is a clear alignment of our investors at GuideStone Funds.
What's the message that you will craft to reach a wider, non-Christian audience?
Dugan: First and foremost we are trying to deliver exceptional performance, but we're only going to appeal to the like-minded investor who wants the values as well. But, when many people first find out about us, they are attracted to the performance and many will stay because they're only in it for the performance. For those individuals that are also wanting to invest according to their values, then that is almost like an additional bonus that helps to create that loyalty and wanting to be with a fund family like ours.
Jones: In addition to that, there is the manager. There are not that many manager's complexes out there, and when one looks at our lineup of world class sub advisors, many that you have to have hundreds of millions of dollars to access or they're not available to the retail public and so forth, there's a lot of interest. That's the kind of intellectual horsepower that we can bring to bear for the investor.
Can you explain a little more about the Christian value screening process?
Dugan: We take a look at all the investable securities in the investment universe, and have outside tools and software that we utilize to be able to identify certain industries, which securities we want to exclude because they are principally recognized or engaged in operating in industries that we want to exclude from our portfolio. So, tobacco, alcohol, gaming, pornography and abortion are the principal industries that we exclude from our investable universe.
We have people that are dedicated to that particular effort within our team; that's their full time position -- to go out into that investable universe and try and find those companies that we need to exclude so that we can then provide the investable list to the sub-advisors that can then go out, focus on securities selection, marry that with their investment philosophy and strategy to be able to deliver exceptional performance on the risk-adjusted basis.
Are company operations a factor to be included in the matrix?
Dugan: It's more the industry basis as far as where they are generating revenue, or how they are operating their business and where the public perception is of that company, where maybe they're doing things that would be considered in conflict or inconsistent with the moral and ethical posture of our organization and what we strive to achieve.
Do you think many industry firms have an issue of morality? Do you feel like you have an advantage as a fund manager based on moral principles?
Dugan: That one is a really hard one to get at in terms of at a company by company level and what is publicly available in terms of data ... and at what point to you draw the line? If I know that your company is principally formed to do X, and that's in direct conflict with our policy, then it's pretty straight forward. We try and identify things to keep them as clear as possible and try and keep the subjective within pragmatism.
Jones: Personally, I'm not in a position to evaluate or judge another fund complex or fund family, but the point I was trying to make; coming out of the financial crisis, there were several instances where what was represented by some investment firms obviously wasn't reality. So, that created a disruption in confidence. Because of who we are at our core, because of our adherence to Christian values, we're not-for-profit, our employees don't get commissions or things of that nature; at the end of the day our alignment is with the investor.
What are the differences working at GuideStone versus the traditional fund manager?
Dugan: In terms of my background and where I come from - being at GuideStone, you're there for the service aspect because you're not worried about what next quarter's earnings are and how you're going to hit that. You are focused on the client today, and what can we do to enhance their financial security going forward.
So, there is the ministry aspect, being a part of that, having the focus to really get into the weeds and do what's best for our participant base as well as being able to step back and run it as a business.
It's really the best of both worlds. You get some emotional and spiritual benefit from working in our culture with a great group of people, but still at the end of the day we have to be able to deliver comparable or close to our peer group in the secular world because we have to compete with that group just as much as we have to compete with ourselves in delivering the best possible investment service product.
Jones: I come out of the insurance and bank trust industry and in the insurance industry many times we were pushed to promote variable annuities, investment products that were combined with life insurance that may not be in the best interest of our clients. Second of all, in the bank trust industry, if the lending side of the bank was under pressure there was more impetus for non-interest fee income.
Those of us who come to GuideStone really feel that this is a calling. We genuinely feel that. Our bottom line is our investors' bottom line. What we're doing is to help them financially. And to the extent that we're successful, we feel that it's that pastor, whether it's that nurse, or whether it's that university faculty member, they can then do what they were called for to do and not worry as much about their financial affairs.
How do you hire people? Are you looking for people like yourselves that are looking for a change?
Jones: More than 50% of our new employees, year in and year out, come from referrals from existing employees. And others, let's say if we have a significant investment position or an executive position, sometimes we will launch an external recruiting effort, and certainly get referrals and so forth, but we've been very successful in recruiting individuals that are in the middle of their career.
Ron Dugan is a prime example of that. He's had this journey, he's worked for two different foundations, he's worked for Frank Russell and their complex and he sees this opportunity to come into a not-for-profit that is clearly focused on the end investor. It's a calling. It's a mission. If you go in and interview any of our 500 employees that is a theme you will hear.
How do you compensate employees?
Jones: We draw our compensation from the fees and expenses that are charged on the funds.
How are those expense ratios comparable to Vanguard?
Jones: They're going to be higher than Vanguard. But consistently we are in the lower one-half when it comes to our fees and expenses.
