Ave Maria: Value With Values
A Catholic-themed fund puts up above-average returns.
Faith-based mutual funds believe you can roll religion and investing into one smart package. The idea is similar to socially-motivated investing, except that the fund screens out companies that don't jive with particular religious beliefs. In most cases, the performance is less than divine. An exception is Ave Maria Catholic Values (symbol AVEMX; 866-283-6274), which invests according to Roman Catholic principles. Over the past three years, Ave Maria has returned an annualized 17%, placing it in the top 20% of funds that invest in undervalued companies of all sizes.
Ave Maria's religious screens eliminate about 400 of the stocks in its benchmark Russell 3000 index, which measures the performance of the largest U.S. companies. Managers George Schwartz and Greg Heilman won't invest in companies that facilitate abortions (including hospitals that administer abortions and pharmaceutical companies that manufacture abortion-related drugs); companies that contribute to Planned Parenthood; companies involved in the production or distribution of pornography; and companies that offer benefits to unmarried employees' partners. A seven-member Catholic Advisory Board, which includes the archbishop of Detroit, meets annually to review the fund's holdings and screening criteria.
Beyond the religious screens, Heilman says he and Schwartz look for undervalued companies with little debt, a history of earnings growth and the potential for more growth over the next three to five years. The $238 million fund, based in Bloomfield Hills, Mich., contains about 70 companies. It invests across sectors and market capitalizations, though the majority of holdings are midsize companies.
Some of Heilman's favorite stocks have dropped lately, a testament to the tough job it is to invest in unusual companies this year. But Heilman remains enthusiastic about a lot of his selections despite poor performance lately.
One is Huntsville, Ala., telecommunications equipment maker Adtran (ADTN), which manufactures high-speed network access products for telecom-service providers such as ATT, Verizon and Sprint. "We're really attracted to this company's business model, and we like the fact that it's been profitable for 23 years straight -- even throughout the tech bubble," he says. Rather than trying to be the first to manufacture a product, Adtran operates within telecom-equipment sectors that are already established, pricing the products to undercut competitors. "After someone else does all the trailblazing, Adtran comes in, develops good products and takes market share," Heilman says. Adtran's shares, currently $21, are down 22% over the past year and currently trade at 18 times the $1.19 per share that analysts expect the company to earn in 2006, according to Thomson First Call.
Another of Heilman's favorite holdings is Gentex (GNTX). This Zeeland, Mich., company makes interior and exterior mirrors for automobiles that automatically dim to eliminate glare. Only 18% of new vehicles sold worldwide have an interior automatic-dimming mirror, leaving Gentex with room to grow, Heilman says. It also sees potential with automatic dimming mirrors that add features such as digital displays, microphones and miniature cameras that control the car's high beams. Slow car sales in North America are weighing on Gentex's stock in 2006, dragging it down 35%, to $13, from $20 in January. DaimlerChrysler, Ford and General Motors currently account for about 40% of Gentex's revenues, but the company is pushing to expand into the European and Asian markets. Heilman also likes the company because it has no debt and about $382 million in cash, or $2.50 a share. Gentex trades at 19 times the 70 cents a share analysts expect the company to earn in 2006.
Consumer products make up Ave Maria's largest sector. Among the fund's top holdings is Lifetime Brands (LCUT), which owns or licenses some of the most well-known names in household products, including KitchenAid and Cuisinart. Acquisitions over the past few years have increased this Westbury, N.Y., company's reach into new product categories and into new areas of the home -- from cookware to home decor accessories. Although these actuations have fueled rapid sales and earnings growth, Heilman says, Lifetime's stock has taken a beating over the past few months. The company's shares have fallen nearly 30% from $28 in June, when the company surprised Wall Street with the sale of $75 million of convertible notes to pay down debt. At $20, Lifetime's stock trades at just 13 times the $1.59 per share that analysts expect the company to earn in 2006.