Let’s listen in to “ETFs Reveal The One True Religion:”
In recent years, ETFs have been the ultimate growth industry. In 2009 more than 120 new products hit the market, and the first quarter of 2010 saw nearly 60 new launches. While some of these new products are “plain vanilla” funds competing directly with existing ETFs, the bulk of expansion in the space has been attributable to innovation, not duplication. The universe of accessible asset classes has been expanding while the granularity of exposure available has also surged.
…
Another interesting innovation in the ETF industry is the development of faith-based funds. A handful of these ETFs have popped up over the last year, each seeking to replicate the performance of an index constructed in accordance with guidelines and principles of various religious groups.
The concept of faith-based funds is commonly misunderstood by ETF investors. An affiliation with a religious entity isn’t a requirement for inclusion in the underlying indexes; rather dealing in certain areas may be grounds for exclusion. In general, faith-based ETFs exclude stocks of companies engaging in activities that conflict with religious tenets. So you’re unlikely to find any stocks linked to gaming, tobacco, alcohol, or pornography in any of these funds. Certain pharmaceutical companies are also on the “do not invest” list because of their involvement in contraceptive drugs and stem cell research.
…
Currently, the universe of faith-based ETFs includes six funds:
* FaithShares Baptist Values Fund ETF (FZB): This ETF tracks the performance of the FaithShares Baptist Values Index, a benchmark with a “zero tolerance policy” for companies involved in gambling, tobacco, alcohol, pornography, and abortion.
* FaithShares Catholic Values Fund ETF (FCV): This fund tracks the FaithShares Catholic Values Index, a benchmark that screens companies in accordance with the Catholic Bishops’ Socially Responsible Investment Guidelines. Companies are evaluated on their Catholic Values, which include respecting human life, reducing arms production, and protecting the environment.
* FaithShares Christian Values Fund ETF (FOC): This ETF is linked to the FaithShares Christian Values Index, a custom benchmark that measures the performance of large cap stocks screened based on a composite of guidelines of various Christian denominations.
* FaithShares Lutheran Values Fund ETF (FKL): This ETF tracks the FaithShares Lutheran Values Index, which avoids companies involved in harmful products and services, nuclear military weaponry, and hazardous environmental impact.
* FaithShares Methodist Values Fund ETF (FMV): This ETF tracks the FaithShares Methodist Values Index, a benchmark constructed in accordance with the investment philosophy of the Methodist Church.
* Dow Jones Islamic Market International Index Fund (JVS): This ETF tracks the Dow Jones Islamic Market International Titans 100 Index, which is maintained in accordance with principles of Islamic law. A supervisory board made up of internationally recognized Shari’ah scholars reviews the fund’s investment decisions, which generally avoid alcohol, conventional financial services, pork related products, and firearms.
Most of these funds don’t have a very long operating history–JVS was launched in June 2009 and the rest of the funds in December. So far, they’ve been relatively slow to gather assets, perhaps in part because of the lofty expense ratios compared to other options for large cap U.S. and international exposure.
…
These faith-based funds may have outperformed the broad market, but they lagged behind some investment products at the opposite end of the morality spectrum. The Vice Fund (VICEX), a mutual fund that targets stocks of tobacco, alcohol, gaming, and weapons/defense companies, added about 6.3% in the first quarter, putting it ahead of all the faith-based mutual funds. And the vice-centric Gaming ETF (BJK), which invests in stocks of companies engaged in the global gaming industry, has also raced ahead to start 2010. BJK gained 10.4% in the first quarter, as the outlook for one of the ultimate consumer discretionary products brightened considerably.
While the recent performance of these ETFs has been better than the S&P; 500, they are not yet investment material.
These funds are still in an embryonic stage with average net assets of around $2.5 million and very light volumes, which makes them suitable for only the smallest investor.
The reason for bringing it up is that several readers have asked me about them. If this investment arena is of interest to you, you now know they exist and can follow them until they grow in size and volume to a point where they can become a worthwhile alternative.
Disclosure: No holdings at this time
Comments 1
Reader Larry emailed this comment:
A couple of faith based mutual funds that I have used during up-trends that are designed to satisfy the requirements of the Islamic (Muslim) religion are from the Amana Mutual Funds Co. symbols AMAGX and AMANX. Both do very well during up-trends and seem to hold up better during sell-offs.
Ulli…