Over the last several years, ongoing innovation in the ETF industry has led to flurries of new product launches offering exposure to new asset classes and increasingly remote geographic areas. One of the most interesting current areas of new product development focuses on faith-based investing, the concept of considering compliance with religious laws and values when making investment decisions. Earlier this week, FTSE Group and KLD Indexes, a leading provider of environmental, social and governance (ESG) research and benchmarks, announced the creation of five custom indexes to be used for the creation of new exchange traded funds (ETFs). The benchmarks include:
- FaithShares Christian Values Index
- FaithShares Catholic Values Index
- FaithShares Baptist Values Index
- FaithShares Methodist Values Index
- FaithShares Lutheran Values Index
On Wednesday, FaithShares announced the launch of three funds tailored to different denomination’s teachings and recommendations for investing. The first three funds to debut are the FaithShares Catholic Values Fund (FCV), FaithShares Methodist Values Fund (FMV) and the FaithShares Christian Values Fund (FOC). ETFs based on Baptist and Lutheran Values are due out later this month.
The funds are based on work that FaithShares has done with the FTSE Group and KLD Research & Analytics, a leading provider of environmental, social and governance (ESG) research and indexes, in order to create the religiously compliant funds. The indexes start with an index of the 400 largest US stocks and then apply religious screens in order to eliminate companies that are involved in objectionable industries such as tobacco, gambling, alcohol, weapons, and pornography. The companies are then ranked by KLD Research & Analytics ESG system which looks for factors such as respect for the environment, treatment of workers, sustainability, and community involvement, among others. The fund then matches the industry weightings of the FTSE US in order to narrow the field down to 100 stocks, using an equal weighting methodology.
“We created these funds to meet the needs of investors who want to participate in the potential of the stock market, yet be good stewards of their money,” Thompson S. Phillips Jr., President of FaithShares. These products should be appealing to investors who are weary about supporting companies with questionable business practices or connections to immoral activities. The FaithShares products avoid these stocks while still offering diversified exposure to large cap domestic equities, a core holding in most investor portfolios.
While the three ETFs have a great deal in common, there are a few differences between the funds and the focus of their respective indexes. For example, the Catholic values fund puts a higher weight on respecting human life, promoting human dignity, reducing arms production, pursuing economic justice, protecting the environment, and encouraging corporate responsibility. The Methodist fund’s index evaluates companies on the following areas: the natural world, the nurturing community, the social community, the economic community, the political community, and the world community.
Meanwhile, the Christian Values fund takes a composite of the guidelines of various Christian denominations and as such it is the most conservative fund. The index for FOC excludes companies involved in gambling, anti-personnel landmines, tobacco, alcohol, pornography, abortion, and stem cells. The funds have an expense ratio of 0.87%, with FaithShares donating 10% of the net income derived from each Fund back to a ministry or charity supported by that Fund’s denomination.
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Disclosure: No positions at time of writing.