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Gotta have faith: The rise of religious ETFs

Thu 31st August, 2017 6:29pm
(The writer is a Reuters contributor. The opinions expressed 
are his own.) 
    By Chris Taylor 
    NEW YORK, Aug 31 (Reuters) - Making money in the markets is 
tricky enough on its own. Try doing it while staying faithful to 
your religious beliefs. 
    That challenge hasn't discouraged some investors from 
trying. Indeed, there is a growing number of faith-based 
exchange-traded funds that attempt to marry moneymaking with 
principles that are deeper and more meaningful than those of 
your typical trader. 
    In the spring, Silicon Valley-based Inspire Investing 
launched its Global Hope Large Cap and its Small/Mid Cap Impact 
ETFs, pledging to apply Christian values as a screen. Those 
products join Global X's Catholic Values ETF as part of a 
vanguard trying to figure out the right mix of religion and the 
markets. 
    "We have definitely seen growing interest in niche 
investment strategies of all sorts, including faith-based 
products," says Ben Johnson, director of global ETF research for 
Chicago-based research shop Morningstar. "There is a decent 
degree of product development going on, and the demographic data 
to justify it." 
    To be sure, we are not talking about billion-dollar 
behemoths here. Catholic Values ETF, for instance, has a 
relatively slim $100 million under management after a year of 
operation, although that figure has been trending upwards. 
    The fact that faith-based ETFs exist at all is a new and 
intriguing phenomenon and is a byproduct of two ongoing trends.  
    First, the stunning growth of ETF assets, as investors 
gravitate towards low-fee indexes instead of pricier actively 
managed funds.  
    And second, the desire to incorporate deeper values in the 
deployment of one's cash. This can be seen in the impressive 
growth of the ESG space (environmental, social and governance), 
where sustainability-minded retail investors have so far plowed 
$75 billion into 187 U.S.-listed retail funds and ETFs. 
    One potential danger of niche ETFs, of course, is that they 
will not attract enough assets to be worth the venture. In fact, 
a few years ago, the firm FaithShares rolled out a whole suite 
of faith-oriented products, only to shutter them when they did 
not acquire enough traction. 
    But that operator might have been a tad too early in its 
innovation, rather than wrong. Inspire's funds have garnered a 
respectable $80 million in their first six months. 
    "I believe that biblically responsible investing will be the 
fastest-growing investment niche over the next decade," says 
Robert Netzly, Inspire's president and chief executive. 
     
    ALIGNING VALUES 
    But what does this investing approach mean, practically 
speaking? Which companies are said to align with religious 
values, and which are not? 
    Effectively, that rules out some firms in the healthcare 
space and some in industrials, according to Jay Jacobs, research 
director for Global X. The no-nos would include "stem cell 
research, adult entertainment, abortion, and weapons makers," 
Jacobs says. 
    That does not mean the fund manager underweights those 
entire sectors. If one company is scratched off their list 
because it manufactures ballistic missiles, for instance, the 
fund boosts its ownership of other industrials that do not. 
    This challenging business of selecting morally acceptable 
companies becomes even trickier when you consider that people of 
faith can, and do, differ in their own judgments.  
    There are plenty of Christians who are pro-choice or who 
believe in the benefits of stem cell research, for whom such 
investment products might not accurately reflect their own 
beliefs. 
    In the case of Global X, the firm does not take on such 
judgments, but leaves that heavy lifting to the U.S. Conference 
of Catholic Bishops. That conference has outlined its socially 
responsible investment guidelines, a screen that Global X 
applies to the S&P 500. 
    CATH's current top holdings, by the way: Apple, Microsoft, 
Facebook and Amazon. The fund has risen almost 12 percent 
year-to-date, and features a net expense ratio of 0.29 percent. 
    Looking at the faith-based trend Christianity, investment 
giant Blackrock, for instance, offers Islamic-oriented ETFs that 
are shariah-compliant. Those products are based in the UK, 
though and not currently available to American investors. 
    And while there are not any specifically Jewish-themed ETFs 
at the moment, an easy workaround is to simply buy 
Israel-focused funds. Among the largest are iShares' EIS, Van 
Eck Vectors' ISRA, and BlueStar's technology-focused ITEQ. 
    Juggling core values and full-on capitalism, however, 
remains a delicate business. 
    "These definitions are so inherently personal," says 
Morningstar's Johnson. "Everyone has different values, and what 
is right for me may not tick the same boxes for you. That is the 
trickiest piece of all." 
 
 (Editing by Lauren Young and Bernadette Baum) 
 ((lauren.young@thomsonreuters.com; 646-223-6166; Reuters 
Messaging: lauren.young.thomsonreuters.com@reuters.net)(Twitter 
@laurenyoung)) 
  
((Follow us @ReutersMoney or at http://www.reuters.com/finance/personal-finance )) 
 
Keywords: RELIGION ETF/

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