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February 25, 2005
MMA Praxis International Fund Buoyed by Strong Performance in Global Markets
    by William Baue

Growth is concentrated in sectors and companies that are excluded by social and environmental screens.

In 2004, international equity markets outperformed US equity markets for the third consecutive year. This was fueled in part by strong performance in sectors that are subject to socially responsible investing (SRI) screens such as resource extraction and energy. SRI funds thus rode the wave in this asset class to the degree that their social and environmental screens constrained them. The MMA Praxis International Fund (ticker: MPIAX), for example, generated strong one-year returns of 15.05 percent in 2004, with 12-month performance falling to 11.26 percent as of January 31, 2005. The MSCI Europe Australia Far East (EAFE) index, the mainstream benchmark, gained 20.25 percent over the 12 months of 2004, and 16.4 percent over the year ending January 31, 2005.

Gilman Gunn, managing director and senior portfolio manager at Evergreen Investments, sub-advisor of the MMA Praxis International Fund as of December 2003, contextualized the strong performance of the international equities market in 2004.

"The early months of the year saw a continuation of the positive trend of 2003 but, by summertime, most of the early gains had been given back," said Mr. Gunn. "Strength returned to the markets in the late third and over the complete fourth quarter, which accounted for most of the year's gain." The EAFE Index rose a little more than 15 percent in the fourth quarter of 2004.

The MMA Praxis International Fund's social screens accounted for the benchmark underperformance due to exclusions and substitutions, according to Jerry Gray, fund wholesaler for MMA Praxis Mutual Funds.

"The fund lagged the international benchmarks due to underweight or no exposure to the best performing global sectors in 2004: natural resource extraction, energy, and basic materials," Mr. Gray told "Our concerns about environmental impact and social justice hindered performance, particularly in the first half of 2004."

MMA Praxis's Stewardship Investing criteria reflect Christian values through negative (or exclusionary) screens of alcohol, tobacco, gambling, abortifacients, nuclear energy, and weapons manufacturing, as well as positive screens for best practice on social and environmental issues. The screening process prompted MMA Praxis to exclude the entire natural resource extraction industries in Russia and China from its international portfolios, according to Mark Regier, stewardship investing services manager for MMA Praxis.

"We simply believe the inability to access consistent, credible human rights and environmental data and past (as well as present) egregious violations simply make the social risks outweigh the small opportunities to encourage positive change that might exist," Mr. Regier told "Such positions, however, can come with costs, as recent market performance rewarded investors in emerging extractive industries quite generously."

"Substitution issues for tobacco and alcohol stocks also hurt performance," said Mr. Gray, referring to screens that prevent the fund from investing in sectors included in the benchmark, as these assets must be redirected into sectors allowable for investment by the screening criteria.

In other arenas, the MMA Praxis International Fund distinguishes itself through community investing, disclosing its proxy voting before its peers, and counteracting market timing.

MMA Praxis maintains its own community investing arm, which currently has over $10 million invested, as all of the firm's funds maintain approximately 1.2 percent of assets in community development investments.

"We take special care to see that international communities benefit from investments in micro-finance, fair trade, agricultural marketing, and alternative energy initiatives," said Mr. Regier. "A recent example is a new $250,000 investment in Equal Exchange, a leading distributor of fair trade coffee, which will result in the purchase of the output of 125 family coffee farms, lifting nearly 1,000 people out of poverty."

While all mutual funds are now required to publicly disclose their proxy voting policies and records, more than four years ago the MMA Praxis International Fund became the first international mutual fund (SRI or otherwise) to publicly disclose its proxy voting record.

Finally, international funds in particular have been targeted by market timing, a practice that is not strictly illegal but can adversely impact overall fund shareowner value by siphoning off gains due to short-term developments in the international market. MMA Praxis acted immediately after it was first hit by large market timers in 2000 by imposing a two percent 60-day contingent redemption fee (CRF) to the specific mutual fund brokerage platform the market timers were using, and then locking the timers out of the fund.

MMA Praxis then monitored the fund at least weekly and sometimes daily over the next two years, and applied the CRF to any brokerage platforms where they identified market timers, who were then locked out. When market timers approached MMA Praxis to see if they could access the international fund through its bond fund (MIIAX--MMA Praxis Intermediate Income Fund), the firm immediately declined. When market timers were identified in an omnibus employer sponsored retirement plan, the firm supported the plan administrator to enact its own CRF.

In early 2004, MMA Praxis instituted automated account monitoring, and in May 2004 it amended its prospectus to allow a two percent 30-day CRF. These measures helped the firm ward off the latest strike by large market timers in spring 2004.


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