In today's investing world, many
individuals simply choose the assets class (ex. Large cap)
they wish to invest in and turn over the company picking to
a mutual fund manager or an underlying index through an
index fund or Exchange Traded Fund (ETF). However, when
choosing individual stocks, an investor has the opportunity
to screen out companies that they do not approve of, such
as those that sell or promote pornography, alcohol, or
gambling. The investor could also screen for a company that
is environmentally conscious or encourages corporate
responsibility.
Those investors looking to
invest in ETFs, but still only desire to support companies
within their values can now turn to a company called Faith
Shares. Faith Shares has recently launched five new ETFs
that invest with Christian values in mind. The company's
product line includes a Catholic Values Fund, Baptist
Values Fund, Christian Values Fund, Lutheran Values Fund
and the Methodist Values Fund.
All funds are built by
selecting the 400 largest US companies. These companies are
screened by the fund's religious values and then ranked by
their Environmental, Social, and Governance (ESG) score by
industry. The companies are then sorted by industry in a
way that mirrors the FTSE US Index. The top 100 stocks will
make up the fund, allocated at 1% each. The passively
managed portfolios will be rebalanced and could have
company changes each June.
This equal weighted
approach to investing allows the funds to be non-cap size
biased. In comparison, the S&P 500 (SPY) ranks
companies by size, thus the investor has a larger portion
of the mega size companies. The equaled weighted approach
(RSP) has outperformed the traditional S&P 500
weightings 1.54% to 0.41% over the last five years.
However, because the equal weighted approach allocates with
smaller companies, there is additional risk. The five-year
Standard Deviation of the S&P 500 is 16.0 whereas the
equal weighted approach is 19.96 (as of 2/12/2010 comparing
SPY to RSP as Faith Shares does not have an actual 5 year
record).
The funds have virtually
the same holdings with a few minor differences. For
example, the Baptist funds is restricted to hold alcohol
companies while the Catholic fund will. Investing with your
values in mind certainly does not come without a price,
though. The ETFs currently have an exceptionally high cost
of 0.87% in annual management fees. In comparison, the
S&P 500 index (SPY) is less than 0.10%. Faith Shares
does donate 10% of its funds revenue to a charity and hopes
to lower the fee as assets grow.
Faith Shares is also
planning a launch of an international product in the near
future. Currently, Faith Shares has the only Christian
faith based ETF product line on the market. The company's
website nor third party sites show the size of the ETFs, so
due to the newness of the funds we assume that the assets
in each fund are less than $100 million. This throws up a
caution flag. We can see that the daily trading volume of
the funds is relatively low, so if you want to trade this
ETF, make sure that you use limit orders based on the intra
day value of the fund.
With proper trading
techniques and a realization that these funds should
complement a bigger asset allocation strategy, these funds
should fit well with faith-based investors. My biggest
issue is the fee. Hopefully with success, Faith Shares will
do the right thing and lower the fee below 0.50%. Below
0.20% seems even more reasonable.
