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Mutual Fund Q&A: 
Profits With Principles
MMA Praxis Funds
Management: Chad Horning

Author: Manish Shah
Last Update: 9:50 AM ET January 13 2011


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Faith-based funds face challenging tasks in their attempts to generate returns while adhering to their strict investment criteria. True to their ethics, MMA Praxis Mutual Funds look for sound investment opportunities while employing principles that encompass a wide spectrum of moral values.

 
Q:  Would you give us a brief history of the company and its funds?

A : MMA Praxis Mutual Funds trace their roots to 1945 when members of the Mennonite Church formed Mennonite Mutual Aid, now called Everence Financial, to provide health and insurance to its members by investing the premiums paid by the members to finance the insurance. MMA Praxis Mutual Funds were launched in 1994 to provide retail investors with professional investment management that reflected faith values.

Everence offers a number of unique benefits to its members, such as free budget and debt counseling, grant programs, stewardship investing, a survivor health plan premium benefit, discounts on loans and stewardship education among other things.

Q:  What types of funds are offered by the company?

A :
The list of funds includes three funds managed directly by us and three by sub-advisors. We manage two equity index funds, one value focused and one growth focused and the third fund is an intermediate bond fund.

At present, we have assets of over $295 million in the Praxis Intermediate Bond Fund, and we also manage assets of about $87 million combined in the Praxis Growth Index and Praxis Value Index funds.

Q:  What is your investment philosophy?

A :
Our managers apply what we call stewardship investing philosophy based on the balancing of social and financial considerations developed through faith convictions. We have six principles that govern this philosophy.

Our six core values are: Respect the dignity and value of all people, build a world at peace and free from violence, demonstrate a concern for justice in a global society, exhibit responsible management practices support and involve communities, and practice environmental stewardship.

Our managers are required to screen and avoid military contractors, manufacturers and suppliers of firearms (other than those used for sports), manufacturers and distributors of addictive products like alcohol, tobacco and investing in casinos or related to gambling. We also aim to avoid areas like human right violations, poor environmental stewardship, and child labor.

Q:  Would you outline your process of investing?

A :
For our internally managed funds and for sub-advised funds, we provide a list of companies that should not be purchased. Consequently, our managers construct the portfolio from names within that universe only.

For the two index funds we target custom indexes created and maintained exclusively for Praxis by MSCI, based on its Prime Market 750 value and growth style series.

The intermediate income fund is a bond fund that is benchmarked against the Barclays Aggregate Bond Index. The screening we described above also applies to the bond fund, with one significant addition. The funds do not invest in U.S. Treasuries because of the Mennonite Church’s long held commitment to pacifism. The Praxis funds choose not to invest in US Treasuries since a significant portion of the government borrowing funds military activities.

The three other funds, namely Praxis International Fund, the Praxis Core Stock Fund and the Praxis Small Cap Fund, as explained earlier, are managed by our sub-advisors and their funds are subject to the same universe used by the internally managed funds.

We also allocate 1% from each of these funds for community development investments as part of our stewardship investment philosophy.

Q:  Is the process of investment in the Intermediate Income Bond Fund any different?

A :
In addition to conventional corporate, agencies, and mortgage bonds, our managers also aim to make a positive impact by investing in the bonds of companies that help finance solar and wind power projects, This is over and above the 1% of each fund that we allocate for community investment.

We have also invested in United Nations backed bonds that support immunization and World Bank Green Bonds that support the development of green initiatives in the developing countries. While not a primary strategy of the fund, we also consider local municipal bonds that support schools, road and water project for communities. In all cases, we require these investments to offer competitive market rates.

Q:  Are these funds made up of domestic securities only?

A :
The two index funds are strictly U.S. domestic funds, but MSCI also includes a handful of companies, particularly financial companies that are domiciled in offshore places like Bermuda and the Cayman Islands. Even though the intermediate income fund is primarily a domestic fund, we have the ability to buy a limited amount of foreign bonds.

Q:  Do you consider the sovereign bonds of other nations?

A :
We are not averse to small allocations to sovereign bonds of other countries, but we limit the universe to countries that have less than 10% of their federal budget going toward military expenditures. We also avoid investments in the sovereign debt of countries that do not uphold human rights. Similarly, if a country practices religious intolerance or does not respect political freedom, we avoid investing in those countries.

Q:  Could you give an example of any stocks that you have avoided and specify the reasons why you did so?

A :
About 10 years ago concerns were raised about the French oil company Total SA, when they were building the pipeline to take oil and gas from Myanmar to Thailand. We had the opportunity for a Praxis representative to visit Thailand and speak with humanitarian workers at refugee camps on the Thai border. We learned that reports of human rights abuses related to the project were well-founded: families were displaced forcibly and without compensation for the progress of this project. When we attempted to engage the company about these concerns, we got no response and left us with the impression that their policies for human rights protections and involvement with repressive regimes did not meet our expectations. We withdrew our investment in the company and added it to our restricted list.
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