Best long term bond investment: Church mortgages

Morningstar reports that, as of 11/6/08, the best return by a long term bond fund year-to-date was achieved by Capstone Church Bond Fund. Only three other funds in the class show a positive return for the period, and none match Capstone’s 4.92%.The fund invests exclusively in church mortgage bonds.

Church mortgage bonds are corporate debt securities issued by non-profit organizations that have a stated Christian mission, including local churches, denominations and associations, educational institutions, para church and other Christian mission-related organizations for purposes including construction, purchase or refinancing of existing real property. The bond issuers operate in a variety of geographic regions in the U.S.A. The Fund will only invest in church mortgage bonds that are secured by a first position trust deed or mortgage on the issuer’s real property.

Because church mortgage bonds do not have an active secondary market and are illiquid, they are typically issued with yields that are higher than those of corporate bonds of similar credit quality and maturity.

Which helps explain why they’d have a higher yield than other funds.  These are still real estate investments, but I suppose the risk profile of a church wouldn’t be very similar to typical individual borrowers nor corporate borrowers.  Of course the churches don’t have to worry about rising real estate taxes.  It will be interesting to see how they do.

Tags: christians, churches, mortgages, securities