Mutual Funds Interactive(sm) - Money Manager Interviews

William L. Van Alen, Jr.

Noah Fund

by Marla Brill

Most business lunches start with some small talk, and perhaps a glass of wine. At the Edgemont, PA headquarters offices of the tiny $6.1 million Noah Fund, they start with a prayer.

As fund President William L. Van Alen, Jr. bows his head and links hands with his wife, he gives thanks for the safe arrival of a visiting reporter. Religious books line nearby shelves, and alcohol is nowhere to be seen.

Beyond the table where the trio dine is a picture window with a panoramic view of the rolling hills and old stone walls surrounding Noah's headquarters office. The company's five employees work on the third floor of a 137-year-old farmhouse decorated with antiques and gracefully aging artwork. The bottom two floors, where the 66-year-old Van Alen lives with his wife Judy, sit within sight of the expansive hilltop house where he grew up.

If the setting for the Noah Fund seems more like a Bible retreat than the headquarters for one of the top-performing mutual funds in the country last year, there is a good reason for it. The fund, explains Van Alen, "is for people who believe in God, and who do not want to profit from the sins of others." To that end, Noah does not invest in stocks of companies involved in alcohol, tobacco, gambling, abortion, or pornography. Most of its holdings are stocks of large, fast-growing companies.

Like its mission, the story behind the Noah Fund is a striking departure from the traditional business model. It began twenty-two years ago, when Van Alen attended a gathering of born-again executives and their spouses. "When I walked in I felt completely out of place," he recalls. "By the time I left, I had asked Christ into my life."

An attorney at that time, he also had a strong interest in investing. In 1991, a friend, who was a broker, approached him about starting a mutual fund. Almost immediately, the thought of starting a Christian mutual fund popped into Van Alen's head.

Although he began laying the groundwork for the fund in 1992, it took several years to get things rolling. He received guidance and suggestions from Hans P. Utsch, a neighbor at his summer house in Maine, and co-manager with Lawrence Auriana of the Kaufmann Fund. The Noah Fund finally opened its doors for business in May 1996.

The first step in the investment process is weeding out stocks deemed objectionable. Van Alen farms that job out to Pro Vita, a research organization that specializes in abortion-related and moral issue stock screening. The no-buy list is passed along to the fund's investment sub-advisory firm, Phoenixville, Pa.-based Geewax Terker & Co. That firm manages about $5 billion worth of growth stocks for pension funds, Noah, and a few other mutual funds. (One of the firm's other charges, Accessor Growth Fund, was featured in the November 1998 issue of Mutual Funds Magazine.)

If Van Alen serves as Noah's moral compass, then John Geewax is the hands-on navigator responsible for steering the fund toward its market beating returns. In 1997, its first full year of operation, Noah's total return of 33.57 percent beat the S&P 500 Index by a small margin, a goal that remains elusive for the vast majority of actively-managed funds. Last year, its total return of 52.77 percent outpaced the Index by over 24 percentage points, and its large company growth fund peers by an even wider margin.

But Noah has been tossed by some rough seas along the way. During last year's July to October market trough, for example, the fund's net asset value slid 25 percent. That was about in line with its growth fund peers, but somewhat steeper than the 19 percent drop for the S&P 500 Index.

And its annual expenses of 1.75 percent are higher than average. (though ten percent of the fund's one percent management fee that goes to his firm is donated to organizations that help the poor or do missionary work.)

That's a lot more than John Geewax is seeing. Until the fund reaches $20 million in assets, he receives the princely sum of $1 a year for his investment management services. Once Noah reaches the $20 million mark, Geewax's management fee will rise to .75 percent of assets. "I'm not charging a management fee because the fund can't afford it right now," says Geewax. "Besides, Bill Van Alen is a nice guy and Noah is important to him."

Unlike his client, Geewax does not usually mix religion with investing, and none of his other accounts employ Biblical guidelines. "I am a practicing Catholic who attends church on Sundays," says the 42-year-old investment manager, who is divorced. "But religion is more of a personal thing for me."

His major passion, he says, is work. Because he often sleeps in his office, his employees recently bought a fold-out bed and sheets to replace his air mattress.

Some of his office hours are spent investing with Noah's restrictions in mind. Those involving alcohol and tobacco companies usually don't present a problem for Geewax, since they often lack the kind of growth characteristics that he looks for. But sometimes, the fund's restrictions eliminate companies that play a prominent role in his other accounts.

Van Alen put the kibosh on one such stock, General Electric, because of the racy prime time programming of its NBC unit. "The issue on many of these shows it whether the characters should go to bed on the first or third date," he says. "That sends an anti-family message." Geewax likes the company because of its strong cash flow and healthy profits.

Pharmaceutical companies, which make up about 15 percent of the fund, can also present a problem because some of them produce abortion drugs or devices. Johnson & Johnson, which Geewax owns in most of his other portfolios, is absent from Noah for that reason. Pfizer, Schering Plough, and Abbott Labs are among those included in the fund.

Van Alen's list of no-buys contains some surprising names, such as Barnes &Noble and Walt Disney. The chain of bookstores "sells sexually explicit material," while the company behind Mickey Mouse also owns Miramax studios, which "produces movies with objectionable content."

Even in this fund, skeptics might see some moral gray areas. The fund's screens do not eliminate Internet search engine Yahoo! and America Online, both top-ten holdings. These companies are major players on the Internet, which has received ample attention for its sizzling chat rooms and sexually explicit material.

Noah also takes into consideration only what companies do to make profits in its screening process, not what they do with those profits afterward. The latter restriction would eliminate most larger companies, which often provide domestic partner benefits to unmarried couples, or make donations to potentially objectionable organizations such as Planned Parenthood.

Still, Van Alen feels his fund fills an important need for individuals like himself. "People who believe in the Bible should have a place where they can invest in accordance with their beliefs, and achieve a good return," he says. "That's what Noah is about."

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