Putting money where your faith is
Serving both God and money has long been an aim of fund companies that exclude “sin stocks” of companies dealing in tobacco, guns, gambling and the like in their investments.
Now, two new exchange traded funds offer a conservative evangelical — what is called “biblically responsible” — tilt to that investing approach. The funds explicitly say in their regulatory filing that they will avoid buying shares in companies that have “any degree of participation in activities that do not align with biblical values,” including what they call the lesbian, gay, bisexual and transgender “lifestyle.”
The approach is squarely at odds with that of nearly all of corporate America.
Ninety-two percent of the Fortune 500 companies include “sexual orientation” in their nondiscrimination policies and 82 percent include “gender identity.” For the first time, half of Fortune 500 companies offer transgender-inclusive health care benefits, including for surgical procedures.
“There are millions of people, including people of faith, for whom discrimination is not a biblical value,” said Mark Snyder, the director of communications for the Equality Federation, a national advocacy group. “Businesses have been leading the fight for full equality over the last few years. LGBT people are part of the fabric of our nation. We have families, we go to work, we simply wish to be treated equally.”
The CEO of the company that introduced the two new funds, Inspire Investing, says he has no problems with companies providing benefits to lesbian, gay, bisexual and transgender employees and having nondiscrimination policies. “As Christians, we love our neighbors in the LGBT community and encourage companies to provide equal employee benefits for all,” said Robert Netzly.
But he added, “A company deciding to spend money and time to pursue a hard-line activist agenda that has nothing to do with their core business is a different issue, and is a waste of investor dollars.”
Issues investing — some call it “socially responsible investing,” which includes the environmental, social and governance style of investing — has been a hot business in recent years. Major investors like the California Public Employees’ Retirement System have made it a part of their philosophy, even though the strategy has costs in lost investment opportunity. Last year, for example, CalPERS re-endorsed its ban on tobacco stocks, even though staff recommended the opposite.
The concept has made its way to exchange traded funds, which have been popular with momand-pop investors because they are a lowcost, tax-efficient way to invest in a broad index — more often than not, the Standard & Poor’s 500. As a category, exchange traded funds have ballooned in recent years, amassing $2.6 trillion. And the opportunity to create niche products seems to be boundless.
“The minority are a success, and the majority are flops,” said Ben Johnson, the director of exchange traded funds research at Morningstar. “It’s spaghetti slinging.”
The new funds would hardly be the first religion-oriented investment products. An earlier group of funds tracking Baptist, Catholic, Lutheran, Methodist and, more generally, Christian, values came out in 2009 but folded in 2011 with just $2 million, Morningstar said.
There are the $790 million iShares MSCI KLD 400 Social ETF and the $500 million iShares MSCI USA ESG Select ETF, which look for stocks of companies with good labor policies or sustainable and renewable products. There are also long-standing mutual funds, such as the $927 million Domini Impact Equity fund.
The benefits off exchange traded fund investing — getting cheap exposure to a broad universe of stocks — can be diminished by eliminating companies based on subjective criteria. And academic studies have concluded that sin stocks perform better as a group than stocks of virtuous companies, at least before factoring in the extra risks to investing in companies that are frequent targets of litigation and boycotts.
Greg Richey, who lectures on finance at Cal State San Bernardino, developed a portfolio of 65 sin stocks and tracked them from 1996 to 2016, finding an average annual return of 11 percent.
Once taking variables like litigation and boycott risk into account, the gains disappear, he said. Also, “the definition of vice keeps changing.”
Pensions and other institutions are asking fund companies for ways to invest that avoid these risks, said Jay Jacobs, the director of research for Global X Funds, which has $4.5 billion under management.
Last year, Global X introduced a fund that adheres to the values of the Roman Catholic Church, and it has taken in $87 million in assets, according to Morningstar. The idea came from conversations with clients that invest on behalf of Catholic groups and foundations, which follow the guidelines set out by the church, he said.
This week, Inspire Investing, based in Hollister, introduced the two biblically responsible funds, a small and medium-size company fund and a large-company fund called Inspire Global Hope Large Cap ETF.
The large-company fund tracks an Inspirecreated index of 400 companies it screened to match its investment criteria, which follow conservative Christian values, Netzly said.
Shares of Berkshire Hathaway, whose CEO, Warren Buffett, has been a major donor to Planned Parenthood, would not make the cut, he said. Nor would Apple, Netzly said, claiming that pornography can be purchased through iTunes. (An Apple spokesman said pornography is not permitted.)
Companies like Amazon that have publicly supported same-sex marriage also would not pass muster. “Any company that takes a hardline approach” to the issue would not pass the test, Netzly said.
On the other hand, shares of Tesla Motors and Under Armour would.