Mennonites Sell Socially-Responsible Funds
March 22, 1999
The mutual fund family of Mennonite Mutual Aid (MMA) of Goshen, Indiana, has become a success story for small funds that invest in socially-conscious ways.
In fact, the organization believes its family of Praxis Funds have done so well that later this year it will be introducing A shares with up-front loads, for all its funds, according to an SEC filing. The existing funds currently carry contingent deferred sales charges.
The group also is considering opening a new money market fund, said J. B. Miller, national sales manager for the Mennonite Mutual Aid mutual funds, the Praxis Funds, and the fund company's first president.
The three funds in the family are Praxis Growth Fund and Praxis Intermediate Income Fund, both introduced in December, 1993, and Praxis International Fund, introduced in April, 1997.
The family's best performer is the Praxis International Fund, which has $31 million in assets and is managed by Oeschsle (pronounced like "Oxley") International Advisors of Boston. Its co-managers are Tina Oeschsle and Kathleen Harris.
Last year, the fund had a 23.98 percent return (minus sales charges). Through January 22, the fund was rated in the top ten of international funds by Standard & Poor's Micropal. It was also included in a list of top performers for 1999 in a mutual fund roundtable in USA Today's December 17, 1998 issue.
The two other funds are managed by members of the Mennonite Church. Delmar King handles the Intermediate Income Fund, a fixed income fund that last year returned 7.29 percent and had $42.4 million in assets as of Sept. 31, 1998. Its return slightly edged out the average for Lipper's Intermediate Investment-Grade Bond funds. The Growth Fund, which is composed of a blend of large-cap equities with a value orientation and with $137 million under management as of Sept. 31, is managed by Keith Yoder and returned 5.96 percent. By comparison, Morningstar's large-cap blend category returned 21.75 percent for the year.
Praxis, as defined in a fund brochure, means the "practical application or exercise of a branch of learning or knowledge." The brochure says: "The word praxis' captures the essence of MMA's philosophy of integrating belief and action."
The Praxis funds invest only in companies that meet socially-responsible criteria. They will not invest in companies that manufacture military weapons, or those that are involved in gambling or the sale of alcohol or tobacco.
The funds have at times engaged in activism. Recently representatives of the fund made a trip to Mexico to talk to Johnson & Johnson executives (in which it invests), about the low wages of Mexican workers in the firm's plant there.
The inspiration for the family came from members of the church who wanted funds that could be available to the public that would "reflect our values," said Miller.
Mennonite Mutual Aid is a fraternal benefit society, like the Knights of Columbus and Lutheran Aid. It primarily provides financial services to Mennonites and members of related Christian churches. The Praxis Funds, however, are available to the general public.
The Mennonites include a number of denominations that stress peace and social justice. The Amish, or Pennsylvania Dutch, are an offshoot of the Mennonites, who wear distinctive, rustic clothing and do not use electricity or motor vehicles. Modern Mennonites, however, have all modern conveniences, but some core beliefs, such as pacifism, remain the same.
MMA already had in-house managers handling fixed-income and domestic equity funds for its own investments, who could handle the funds. They also had a ready-made distribution channel since they dealt with a network of financial planners and insurance agents that sold MMA products to the church's members. Even so, it was not easy getting the funds off the ground, Miller said.
Dave Huber of BISYS, which is the administrator and distributor of the Praxis Funds, said that MMA has solved probably the biggest problem new funds face, which is distribution.
"A lot of great managers can't sell their funds," Huber said. "You have to have a plan on how you are going to raise assets."
"One of the biggest challenges [getting started] was building a distribution system," Miller said. "For us that required a lot more focus and attention than anyone might have imagined. The other was to build a sense of reliability. We wanted to get the investor to say, These people are good potential managers. I want to invest with them.' In short, the question for us was, How do we build confidence in our funds, particularly when there's no track record?'"
In his current position, Miller acts as a wholesaler for Praxis. He took that role because he wanted to try something else besides money management and to move the funds beyond their traditional market, he said.
Most of the Praxis Fund sales are through financial planners, independent brokers and insurance agents, he said. Direct sales constitute a very small proportion of sales.
The funds are also sold through supermarkets like Charles Schwab, Jack White and DLJ Pershing. Pro Equities, a broker dealer in Birmingham, Alabama that has registered reps throughout the country, about 100 of whom are members of the Mennonite Church, is one of the major distributors of the funds.
Miller thinks that in light of how the international fund has done, the future of the Praxis family is bright.
"When people come to us they tend to think, It's a socially-responsible fund, I'll have to sacrifice some on my returns,'" said Miller. "We know now that there are socially-responsible funds that perform as well as those that are not screened."