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.