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
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,
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.
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.
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.
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
SocialFunds.com. "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
SocialFunds.com. "Such positions, however, can come with costs, as recent market performance
rewarded investors in emerging extractive industries quite generously."
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.
arenas, the MMA Praxis International Fund distinguishes itself through community investing,
disclosing its proxy voting before its peers, and counteracting market timing.
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.
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
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.