Ethical Investment

I am interested in atheism; what it means, what it entails and what it is. If you are interested in atheism and actually engage with it as a subject, then you are automatically interested in religion. It is related to religion, in that it defines itself as a rejection of this mode of thinking. It is not a system of belief itself. There was a letter to the Irish Times recently (from Colm FitzPatrick - an actuary, I know him) that said that atheism was as much a structured system of belief as religion is and that prominent atheists were as much “religious fundamentalists” as the religious variety. A perceptive letter of reply contradicted this opinion elegantly, saying that you could not claim “darkness” as a “thing”, rather it has to be defined as an absence of light. It is a fine metaphor – except for the unfortunate association of “darkness” with atheism, and the Biblical light/darkness association with good/evil – which is exactly how religious folk will interpret the allusion, missing the main point of the statement… I’ve been racking my brains to think of another physical relationship in the universe whereby one thing exists because of the absence of another, but does not exist in itself… the only one I can think of is a minor re-statement – light/shade. Love/hate? Sight/blindness? Too subjective.

Anyway, in addition to thinking about things like this, I am also partial to spending Saturday mornings over a long, lingering breakfast of coffee, fruit and scones and reading the Irish Times and Financial Times. It is one of my chief pleasures in life. I enjoy the book reviews in both; Breda O’Brien’s columns which never fail to annoy me, but whom, and whose opinions, I respect; the “what’s hot, what’s not” column; the always hilarious restaurant review;  Ian O’Riordan’s athletics column; Tyler Brulée and Harry Eyres on the back page of he FT Weekend – often I suspect neither person actually exists: I think they may both be joke caricatures of a way of life, one impossibly racy and materialistic, the other impossibly virtuous and balanced; finally, I enjoy the FT Money section, as I can pretend to be super-rich and spend my times in fine cafés deciding where to invest my pile of money.

Anyways, pulling these themes together: the FT Money section reviews the universe of investment opportunities – half of the twenty page supplement is raw statistics, on fund performances, commodities, share prices, yield curves, currencies, exchange traded funds, investment trusts, unit trusts, venture capital funds… Its intoxicating, and a little overwhelming. The bones of the rest of the supplement are the pontifications of financial journalists on two things:

• What investments will perform in the future?
• What investments performed in the past?

As to the first question, no-one really knows and the fun is in reading the different, often contradictory, opinions.

The second touches upon the old adage about economists; an economist is someone who will tell you tomorrow exactly why the prediction he made today was wrong.

Reent issues of the FT Money have been pretty unanimous as to what has performed well in the last five years (“well” meaning least bad, in the context of a global meltdown): obviously gold, some currencies, some bond funds. In the mutual fund sector, the clear leader over five years are “ethical funds”.

These are a new phenomenon, so the data doesn’t go back too far, and we can’t say for certainty how they perform in the long-term, but it is clear that of these “ethical” funds, the funds that have done the best are the “religious ethical” funds. This is a Middle-East and American phenomenon – in Europe we have “ethical” funds, but they tend to screen investments on environmental or relativistic/secular moral grounds. In contrast, religious ethical investments screen the set of investment opportunities for those that are permissible by a set of religious codes – for instance, the most established religious ethical investing practice is the “Sharia compliant” investment, investing with reference to what is allowed by the “Sharia Law”, that prescribed by the Koran. This, for instance, bans the receipt of interest payments, or investing in alcohol companies, since alcohol is prohibited under Sharia Law. The American versions are along the same lines, except they tend to vary much more dramatically; there are Catholic funds, Lutheran funds, Methodist funds, Unitarian funds, Scientology funds, Mormon funds…more funds than you could shake a stick at.

They vary widely in what they can and can’t invest in, but they generally avoid the “vices”: gambling, pornography, prostitution, armaments, alcohol, tobacco, oil, mining, pharmaceutical companies making birth control etc. There may or may not be an environmental element within this.

It sounds inherently contradictory – does it make sense to piously avoid gambling stocks when, fundamentally, buying equities are a form of gambling?

But the statistics say that, incontrovertibly, these funds have performed creditably over the last five years, most of them well into the upper quartile of active managed mutual funds.

Should we atheists repent? Is God’s law actually profitable to follow? Is God guiding the markets in favour of his commandments? Should I sell short companies producing meat every Friday and buy them back on a Saturday?

Some theologians have claimed that it is, indeed, justification of their religious beliefs – that the performance of these funds somehow supports the view that we should live our lives according to the tenets of a particular faith (and investment). Maybe they are right. (But to be logically consistent with this viewpoint, should we not all pitch in our lot with the best performing religion – since these ones will have the most correct set of principles that God approves of? (Islam, say the league tables, followed by the Catholic funds). Or if an investment really tanks, should I abandon the religion altogether, since God clearly doesn’t approve of what it is saying? Theologians love taking credit where it is not due, and then not following through their lines of thinking.)

But I suggest not. One, these funds are new; there is about five year’s worth of creditable data, so the jury is still very much out. Two, the five year period in particular corresponds to the worst recession since 1929 – ethical funds, investing in primarily defensive sectors, will naturally do well in this climate. Sectors like oil, commodities, tobacco are much more cyclical – they rise as the global economy rises, and vice versa.

Rather than viewing the outperformance of religious funds as divine approval, I’d be more inclined to attribute he performances to human nature. In a contracting economy, people hoard money – they cut back on the smokes, they drink less (maybe more, but bootleg), they cycle instead of using the car, they don’t fly around the world on holidays twice a year. Some vices are more inelastic than others – consumption of tobacco, being highly addictive, inevitably does not fall as much as, say, oil. But all fall.

When the economy waxes again, and rashers again grease the pan, then, reassuringly, good old human failings roar to the fore again. Disposable income is wasted on the usual vices, and conventional stocks rise in valuation. As simple as. But maybe I’m wearing my economist’s hat here. Who knows?

I’ll keep my Sabbath ritual of the IT, FT, coffee, and avoidance of all semblance of work, and I will keep betting on the predictability of mankinds’ weaknesses; fear and greed, its what we all share.

That’s my two cents invested.