Religion-Based ETFs Return With Real Promise

March 31, 2017

Over the past year, there has been a lot of talk about socially responsible investing, and we have seen a wave of products in the ETF space.

In fact, the big winner at last night’s ETF.com Awards was the SPDR SSGA Gender Diversity Index ETF (SHE), a one-year-old fund with $290 million in assets, which won an unprecedented five awards. SHE tracks a market-cap-weighted index of U.S. large-cap companies with a relatively high proportion of women in executive and director positions.

The fund has performed well, with a 13.5% return over the last month, despite trailing the SPDR S&P 500 ETF Trust (SPY), which has seen a 17.3% gain during the same time.

Chart courtesy of StockCharts.com

But the point of these socially focused funds is not to outperform, but to be in line with the market while offering an added return of social peace of mind. Investors in these kinds of funds certainly don’t want to lose money, but if they’re giving up some performance while contributing to a greater social good, that’s a trade-off most will embrace.

Same goes with investors in the biggest batch of these principles-based funds that include screening out big carbon-producing companies, or those public companies that own fossil fuel reserves or make guns or tobacco. These funds are constructed to keep up with the market using sector caps and other structural designs to prevent high concentration into one pocket of the market.

However, the one issue that may be working against this idea of investing is something as simple as this: Many people don’t really know what their true principles are, much less understand how to align them with investing.

Maybe that’s a cynical statement, but I think it rings true when you look at the antipathy when it comes to voting. Out of the 230 million voter-eligible population, 40%—or more than 90 million American citizens—didn’t vote in the last presidential election. The disparity between presidential candidates couldn’t have been more stark, but nearly 100 million citizens didn’t care.

You have to be fervent in your beliefs to trade possible underperformance in your investments for what you see as a greater good.

 

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