Ethical investing is when the investor makes investment decisions based on personal moral codes or preferences. Ethical investors are also motivated to invest in companies that are making a positive impact in the world. For instance, investors can invest in companies promoting cleaner earth by investing in renewable power to reduce the harmful effects of carbon emissions.
Ethical investing falls under the Environmental, Social, and Governance (ESG) framework in broad terms. Investors in ESG opportunities seek to generate long-term returns but also consider sustainable options that promote social good. ESG investing is a fast-growing sector. According to the US Forum for Sustainable and Responsible Investing’s (USISIF) report on US Impact Investing Trends, as of 2019, one out of every three dollars under professional management in the US (about $17.1 trillion) is managed according to sustainable investment strategies. In Nigeria, the Federal Government has issued two “green” bonds with 25 billion in 2017 and 2019.
The popularity of ESG investing and the increased sophistication of investors have led many investment houses to design investment funds that allow investors to invest according to their personal beliefs. Exchange-Traded Funds (ETF) have been a prevalent vehicle for ESG investing. This article focuses on the social investing space and looks at options for Christian or faith-based investing. I list a few.
Global X S&P 500 Catholic Values ETF (CATH)
Focus: Equities, US Large Cap
Launched in 2016, The CATH has about $575 million in assets under management and is the largest Christian-themed investment vehicle. Overall, it invests in over 450 technology, financial services, and healthcare companies that make up its largest components. The CATH is cap-weighted, which means the individual components of the CATH index are included in amounts that correspond to their total market capitalization.
The CATH tracks an index of US Large Cap stocks selected from the Standard & Poor (S&P) Index. The CATH omits companies whose operations are at odds with Catholic values.
In terms of performance, the CATH has a 19.07% index return for FY 2020, slightly beating the broad S&P index that returned 18.40% over the same period. The expenses cost to buy into the CATH is higher at 0.23. The top holding of CATH includes Microsoft, Apple, Amazon, Facebook, Tesla, Procter and Gamble, Nvidia, and Berkshire Hathaway.
CATH will not invest in companies engaged in contraception, abortion, stem cell research, and pornography. Thus CATH will not invest in Pfizer or Johnson and Johnson. CATH can invest in companies selling weapons if their weapon sales are below 50% of total revenues.
The Inspire 100ETH (BIBL)
Focus: Equities, US Large Cap
The BIBL is the second-largest Christian-aligned ETF with about $282 million in Assets under Management. The BIBL also invests in US Domestic large capitalization stock ($20 billion market cap or more). The BIBL utilizes a proprietary Inspire Impact Score® to assign a score to particular security based on that security’s alignment with biblical values and the company’s positive impact on the world through various ESG criteria.
The Impact score favours companies with high alignment to Corporate Governance, Data Security, Environmental Stewardship, Innovation, and Labor practices.
The BIBL has a small universe of holding and does not hold many of the broad sectors that the CATH does. For instance, the BIBL does not invest in Apple or Microsoft. Its largest holding is in Servicenow, a maker of digital workflow solutions, Intuitive Surgical, an innovative healthcare company that makes minimally invasive surgical equipment as well other surgical enhancements, including early cancer detection and Prognosis; a world leader in logistics real estate solution and Trusts and winner of North American Logistics investor of the year 2020.
In terms of performance, the BIBL returned 24.88 in FY 2020, beating the S&P index, which returned 18.40 in the exact period. This performance does come at the price of a higher expense ratio of 0.48. (for context investing in the VTI ETF has an expense ratio of just 0.03).
Inspire Global Hope ETF (BLES)
Focus: Equities, Global Large Cap
The Inspire Global Hope ETF invests in 400 Christian-aligned large-capitalization stocks worldwide, not just the US market. The funds have about $140 million in Assets under Management, with 50% invested in the US, 40% in developed foreign markets, and 10% in emerging markets.
The BLES is an equal-weighted index; unlike the cap-weighted index, its constituents have equal weight in the index. The fund screens and excludes companies involved in gambling, alcohol, pornography, and abortion. The ETF adds companies that provide services geared towards education, fighting disease, and impact projects worldwide.
The fund’s shares are equally shared: American Shared Hospital Services, engaged in leasing radiosurgery and radiation therapy. It also holds Southern Copper, engages in mining and production of copper and silver in Peru, Mexico, and Avenue Supermarkets that runs DMart selling, food, kitchenware based in India.
The BLES is a young fund launched less than three years ago with a three year Net Asset Return of about 13% with an expense ratio of approximately 0.61.
The above-listed are all equity-based. There are also options for investors simply seeking income without the risk of volatility.
The Inspire Corporate Bond Impact ETF (IBD)
Focus: Fixed Income US Investment Grade US-issued Debt
The Inspire Corporate Bond Impact ETF (IBD) is an ESG focused fixed income ETF. The CEO Robert Netzly says, “Wall Street is starting to notice that there are millions of Christian investors who want to glorify God with their finances.”
The fund was started in 2017 and is the first ESG Fixed Income ETF to break $100 million in Assets under Management. The IBD targets high-quality investment-grade income securities issued by the inspiring, biblically aligned large companies in the US. The fund aims at “quality performance characters while also creating meaningful impact in lives of people across the globe.”
The 30 day SEC yield of the IBD is about 1.87% as of 15/10/2021, with an expense ratio of 0.49.
With a broad mix of equities and fixed income, these faith themed investments provide an investment outlet for the religiously minded investor to participate in the money and capital markets.
Where can you invest in these? Chaka is SEC-registered and carries these ETFs in her portfolio.