Are Values-Based and Socially-Responsible Investments Worthwhile?
Yesterday, FaithShares added two new exchange-traded funds to their lineup, already consisting of funds called “Catholic Values,” “Christian Values,” and “Methodist Values.” These and the two new funds, “Baptist Values” and “Lutheran Values,” focus on investing in only those companies that live up to the values encouraged by each of these communities. It is more accurate to say that these funds look to invest in companies excluding those that do not meet their expectations.
For example, the Baptist Values Fund avoids companies involved in gambling, tobacco, alcohol, pornography, or abortion.
I understand the appeal of being a good steward of your money by investing in funds tailored to the values held important in a community, heritage, or a religion. These religion-based ETFs are not much different than other funds that cater to other value-related movements. Socially-responsible funds are marketed to environmental activists or people interested in expanding human rights. While religion-based funds focus on eliminating investments in companies associated with sins, socially-responsible funds seek to invest only in companies with the same values.
Regardless of the choice between values-based or socially-responsible investments, the main purpose other than earning money for the fund managers is to make the investor feel comfortable. Regardless the affiliation, people with strongly-held convictions make great target demographics. It may be a smaller group of investors than would be reached by broadening the audience, but they are willing to pay more for products and services that appear to be aligned with their closely-held priorities.
While investing, success in avoiding companies that do not conform to your values in nearly impossible. Curiously, the FaithShares funds do not list each fund’s holdings in either their prospectuses or statements of additional information. While the direct holdings may well fit the requirements, every company works to invest its own capital. These investments could be in other companies that add yet another layer of investment complexity. Unlike the companies in which the funds invest directly, these subterranean investments, sub-subterranean investments, and deeper are not screened for their compatibility with the marketed values.
As Marketplace observes, “… because of the narrow focus, you wouldn’t want to make one of these ETF’s the core of your investment strategy.” In other words, to invest appropriately you need broader diversification, resulting in investments outside of those screened by fund managers to match your life philosophies. To be a good steward of your money, you need to look beyond the investments designed for your value niche.
If you want to feel good about your investments, then by all means, choose funds that cater to your values. It’s likely you will pay more and earn less than investing in a broader mix of stocks. But if you want to make a difference with your money and support companies you believe in, work within your community or with those companies directly.
Article comments
Your last sentence says it all: investing really isn’t the place to do your charity work. Investing is about making money, so this is only going to get you in trouble.
And I’d be very careful, this is shocking to me:
Curiously, the FaithShares funds do not list each fund’s holdings in either their prospectuses or statements of additional information.
To me they are no different than any other similar choice. An attractive name gets more money though, but it’s no indicator of value!
John DeFlumeri Jr
To some degree I appreciate that people want to invest with their values. After all I write a faith based personal finanace blog, and I want to honor God with my money. When you look deeper at it, however, by investing with some of these faith based mutual funds you’re really not being a good steward of the money that God has given you. So many of them have such high costs, and while performance may not be horrible – you could be doing a whole lot better just by investing in a low cost index fund. I don’t believe it’s a salvation issue to be investing in low cost mutual funds that may contain some stock of a company with questionable ethics, for many of the same reasons as Paul enumerates in his article above.
Flexo,
I agree. If you actually want to make a difference, then you’re better off volunteering, lobbying, or giving to the causes you support. Like KC said, these funds are just playing off people’s values but the investors would be quite surprised if they actually researched the companies in those funds.
I write about personal finance from a Christian perspective and I don’t recommend faith-based investing at all. The fund costs are high and you’re not actually doing any good in the world. I outlined my other reasons here. The logic behind it is very flawed, though I guess most of the fund managers mean well.
Thanks for sharing the link, Paul!
No problem, Flexo! Thanks for letting me share it. I didn’t mean to plug my own article, but I feel pretty strongly about this – especially when the fund managers or proponents imply that anyone who invests another way just isn’t quite as holy or righteous.
I don’t blame people for investing in these types of funds. If that is what they beleive in, that’s great.
From a financial perspective, it probably makes more sense to just invest in a low cost index fund. Then with the money saved through expenses and gained through better diversification, donate that money.
To each his own I suppose, but it’s far better in my opinion to ignore your personal feelings (faith, past transgressions, etc) when making an investment.
I agree with KC, I think it’s a marketing ploy to fish out naive investors. Not to mention, if you only want to only invest in “ethical” companies, best of luck to you in finding them. That’s got to be a very short list.
“Ass” Marketplace (paragraph 6) – really? That’s too funny, especially in an article about values – hee-hee!
As for moral funds I don’t let much stop me from making money. If I followed my values I wouldn’t be able to shop at 90% of the places I shop/eat at as they would offend me in some way. And I probably wouldn’t own 90% of the stocks I own because I’d disagree with their values in some way or another. However I will note that I have never been able to bring myself to buy stock in a cigarette company – I just can’t do it – I’ve read too many books about the subject and I live in the home city of RJR. I’ve seen the effects and I just can’t do it. But that’s my hang-up, not something I would enforce on someone else if they asked for stock advice.
These funds are just another niche to suck money out of naive investors. They think they are buying a fund that is directed in one way or another so they can feel good about themselves. But chances are if they dug deep enough they’d find something they didn’t like about the companies they were investing in.
Heh. I fixed the Freudian typo. I agree, if you want to stand by your convictions, you have to do much more than choosing funds marketed to your values.