Welcome to this week’s INFREQUENTLY ASKED QUESTION: How Do I Decide Which Business Practices to Screen from My Portfolios?

Many advisors would like a straight-forward, black and white approach to portfolio screening. They would like a widely accepted definition of faith based investing, but that doesn’t exist. In this video, Hillary Sunderland and Cassie Laymon discuss their approach to portfolio screening at LightPoint™ Portfolios. Please send your comments and questions to cassandra@beaconwealth.com.

Full transcript below.


Cassie Laymon:
Hello everyone, and welcome to this week’s episode of infrequently asked questions. You can see I’m joined today by Hillary Sunderland. She is the Chief Investment Officer at Beacon Wealth Consultants and LightPoint™ Portfolios. Thanks for joining us today, Hillary.


Hillary Sunderland:


Well, our infrequently asked question today is how do I determine which business practices I will screen out of my portfolios? So, I just want to set the stage here for a moment. Many of you who are listening to this are Certified Kingdom Advisors. So, you’ve gone through this process where Ron Blue really encouraged us to come up with our personal convictions around many different areas. And one of the areas that was not necessarily addressed in that was building portfolios or screening. And recently Kingdom Advisors has really taken on this role of talking more about developing your personal convictions around investing. So, I want to be clear, first of all, that we do not represent Kingdom Advisors in our discussions here. These are just our subjective opinions, but, I really agree with this idea of coming up with your own personal convictions.

So, if you’re going to say, “okay, I just am going to use BRI [biblically responsible investing] funds and then that will build my portfolio.” It’s interesting because all BRI funds screen very differently. So I think it’s very important to look at all of these business practices and really think about what’s important to you. What do you think you should be screening out and how that looks? And it takes some work. It really does, but you have to develop your own set of convictions around this. You cannot outsource your convictions about screening. There are pieces you can outsource, but that part, you kind of have to determine for yourself. So I’ve invited Hillary to talk a little bit today about our screening process at LightPoint™ Portfolios, what we decided to screen out and how that works. So, you can get a little bit of an idea of how you might want to put this together or how you might be thinking about these issues. That’s kind of a big question I just handed over to you Hillary.


Oh, that’s okay. I’m glad to take it Cassie. So, I like when portfolios we use, we’ve determined that we are going to use both exclusionary screens, which are also known as negative screens, and also positive impact screens in our portfolios. So, I’ll start with the exclusionary screens first, because those are really what comes to mind when you’re talking about “how am I going to screen a portfolio?” And as you said, Cassie, one of the issues with using, or one of the challenges really of using, mutual funds and ETFs in a portfolio is that as the portfolio manager, I’m not determining what securities each mutual fund or ETF is going to buy. So, it makes my job a little bit more difficult because as a manager of managers, I need to look at well, how are these other fund companies screening? And based on how they’re doing things, does that really compliment what we are trying to do at LightPoint™ Portfolios?

And so, our exclusionary screens, we start with what we term zero tolerance type issues. And so we look at abortion and abortion philanthropy, and also pornography as being zero tolerance issues. Meaning we want to find mutual funds and ETFs and individual stocks as well in our UMA platform that really have no exposure to those issues. We also look at addictive behaviors, such as alcohol, tobacco, and gambling. On those we’re looking for mutual funds and ETFs that screen out companies that are primarily involved in those types of businesses or that derive at least 5% of their revenue on those business practices. We also screen out predatory lending as well as the most aggressive advocates of anti-family values and causes.

And then on the positive side, this is a little bit more difficult to do in the in the BRI space, just given the data that’s available, but we like to invest in companies that are really creating blessing in the world and compelling values. So, we call these our Shining Light companies, and we look for companies or mutual funds and ETFs that on a positive basis are looking for companies that demonstrate strong servant leadership, that live out the Golden Rule in their business practices. And that really create compelling value with both the products they offer as well as the services they offer to the marketplace.


Great. So Hillary, before we move on to our process of how we screen, I want to go back to this issue of zero tolerance. So I have been doing BRI for about seven years and in the beginning, I would say I was in the camp of zero tolerance, right? I want it to be perfect. I don’t want any one penny of my money to go to any of these business practices that we oppose and over time I’ve learned that that is a pretty difficult stance to take. So can you talk to me a little bit and talk to our listeners about why it is challenging to try to be zero tolerance on all issues across the board?


Sure. That’s a great question, Cassie. So there are some screens where it is really difficult to implement a zero tolerance approach. And a lot of that just has to do with, you know, we’re trying to be, we’re trying to screen out companies that are primarily engaged in these business activities. So I’ll take alcohol as an example, the alcohol industry itself really thrives on people needing to get drunk and addicted to alcohol in order to really profit in that particular industry. However, that does not mean that every restaurant that happens to serve alcohol, that their primary business activity is in the distribution of alcohol. And so whenever you get that granular, you’re trying to screen out anybody who has any sort of involvement with alcohol, you really end up narrowing the opportunity sets to a point where it’s really difficult to build out a fully asset-allocated portfolio. And so at LightPoint™ Portfolios, what we really try to do is we look at each company and really the intentions of what they’re doing – is the company thriving on the distribution of alcohol in that they need people to become addicted in order to generate profits? Are they really driving that approach or is it more, you know, they happen to sell alcohol in their store, but it’s not their primary source of revenue?


And I think you did mention, we do, there are things like abortion and pornography that we really do take a zero tolerance approach, but we are really looking for this balance between a very robust screening and at the same time, being able to have a fully asset-allocated portfolio that’s diversified because sometimes you might end up with everything in one or two fund companies, and that’s not great for the client either. We’re really looking at how can we screen as aggressively as possible, but still be a great fiduciary for our clients. And we’ll talk more about what that means next time.




So can you talk a little bit about the process that we use in our screening?


Sure. So our process, we call it a screening discernment process and we call it this because we found over time that it is extremely difficult and, really unwise to just take, a quantitative approach to screening. So what I mean by that is if in your mind you have established, I want to screen these funds in my portfolios. And as long as they don’t have more than maybe 5% exposure to BRI issues, I’m just throwing out a number there, I will be okay with that. And the problem with that is every data provider sources their information from different places. They interpret the data in a different way. And so depending on what data providers you are using in order to gain your, in order to look at your screening criteria, you can get very different results. And so what we do is we call it really our five step discernment process, our approach to screening.

And we start with, I first read the prospectus and I say, okay, what is this fund company supposed to be screening out by prospectus? And then I look at all the underlying holdings and how that fund screens in various screening providers. And I say, okay, well, is the fund actually following that mandate because if the fund isn’t following the mandate that they set forth by prospectus, then that’s a red flag as a portfolio manager. However, if they are following that mandate, then the next question is, okay, so they’re following this mandate, are there still failures? And in looking at these different screening providers and then are those failures explainable. So an example of that would be with the abortion philanthropy screen. This is a common one. Some screening providers are going to look at corporate contributions to organizations such as Planned Parenthood. And what I mean by that is a corporate contribution is the company itself decided that they are going to be a corporate advocate and they are going to designate their funds directly to Planned Parenthood.

Whereas other screening providers are going to look at both, those types of contributions, as well as matching contributions. So if a company shows up that they donated money to Planned Parenthood, it could have easily been a $100 matching contribution from one of their, you know, 5,000 employees. And so understanding how that data is derived and how you arrive at that process is really important when you’re looking at the various screening providers. So we’re looking at, we’re really taking a deeper dive we’re looking at, okay, well, if the fund’s still showing failures, why are they showing failures? And are those failures explainable, is, is that really permissible to us as an investment committee or not?

And then finally, we’re going to look at really what’s available from a fiduciary perspective. If we are fiduciaries to our clients, we need to offer well balanced portfolios that will perform well in a variety of different economic environments. And so if, if you’re looking at a fund and one fund may have a 5% failure rate, and one might have 15, depending on how all the statistics fall and where some of those failures are coming from, it may be better off for the client to invest in the fund that has, you know, more than 15% failure rate, because some of those failures could have been derived from things that we would say are more miscellaneous type infractions that aren’t really at the heart of what we’re trying to screen for.


Yeah. This whole process is much more complex than I ever thought it was. So, as you’re saying, like, you can say, oh, I want to screen out anyone who contributes to Planned Parenthood, but that can really look differently based on if it’s coming from the company or if it’s a match. So there are a lot of decisions to be made. And one of the things that you talked about is that, we have an investment committee where we all have some different views and really debate these issues. And so, I’m going to give a little advertisement for the Christian Investment Forum that’s coming up August 14th to 16th because Hillary is going to be there and we’re going to have a virtual investment committee meeting where you can really get a sense of how we walk through and look at a couple of different funds to put them into a portfolio that has just been a really enlightening experience for me.

Well, so Hillary, one of the hard questions that advisors ask sometimes, or, well, you know, if I can only have one screening tool, what would that be? And I’m not going to put you on the spot and make you answer that, but I will tell you, as Hillary talked through the process, we have three screening tools that we use. So let me tell you what they are and why we use those. Okay. So, probably one of the most familiar to everyone would be eValueator. And we use that tool because we serve advisors and that is a tool that’s very popular among advisors. And so we want to know when people are screening our portfolios, what kind of tools they’re using. We want to be in the know on that. And probably one of the more conservative screening tools I will say that.

Then we also have ENSOGO Analytics, that’s ENSOGO analytics. And one of the reasons that we started using there’s a couple reasons, but, one reason is that they look at all sides of an issue. So they are agnostic when it comes to screening, they look at the most liberal issues and the most conservative issues and our clients, we found really liked that because they could, really see the whole spectrum of issues, even if they’re really most concerned about the BRI issues. And then, Hillary didn’t really go into it today, but we’ll talk about it in the future about how, eValueator and ENSOGO look at issues a little bit differently and how they screen a little bit differently. And what’s interesting as we go through our process, we often find that a fund might be zero at eValueator and have infractions at, ENSOGO or the opposite be having a very low, I don’t know, infractions is that the right word? Failure rate and then have a higher failure rate at eValueator.

And so at that point, as Hillary talked about, she’s starting to dig in and say, what are the companies that are causing this to happen? And so we have a third tool, which is the BRI Institute, and there we look at individual companies and we can really dig in and see where that where those failures are coming from and to determine again, is this a primary concern of the business? Is it not? And then we have four voices that debate that. So that’s why we have taken the approach that we have taken on that. Hillary, is there anything else in terms of the screening that you would add before we close?


I would just add that, you know, if you’re getting into BRI for the first time, looking at screening may feel overwhelming at first. And I think a lot of advisors end up stopping there and they say, well, this seems way too overwhelming for me. That’s a lot of time. I don’t want to spend my time and resources doing this. And advisors tend to have this, can have this, perfection mindset whereby they may think, well, if I can’t get my portfolios to screen exactly how I want them to screen, then it’s not worth doing at all. And I would just encourage you to take a look at this, take a look at BRI anyway. On this side of, of heaven, we’re not going to be perfect. There are always things that we’re working toward, but I think as we come together as a community, and we step forward in this process so that more providers can come to market with products. We can have a greater voice in the marketplace and really see change. We’ve seen that on the ESG side and on the SRI side, over the last decade, especially with a lot of positive impact from those particular movements. And I think the BRI movement can have the same voice. And so don’t get stuck in that perfection mindset. BRI is definitely worth doing, even if it can’t be implemented perfectly.


Great. Thank you, Hillary, for that, I will also tell everyone we are working on a series of continuing ed courses, CFP® continuing ed courses. And one of them will be around screening. So hopefully in the next few weeks, you can see that and start to earn some continuing ed credits as you learn more about BRI. So Hillary, thanks so much for joining us today. And I will just tell everyone we are here to answer questions. Today we talked a lot about examples of how we do things so hopefully that will help you. LightPoint™ Portfolios are available to advisors. So if that’s something that is compelling to you, if you’d like to make your own screening job easier, just reach out and let us know. My email is Cassandra@beaconwealth.com, and we’re happy to answer any questions you might have and help you in any way that we can. Have a great day. God bless.




BRI Institute