Are Faith-Based ETFs the Answer to Clients’ Prayers?

Gotta have faith … in ETFs.

Though still niche, faith-based ETFs are gaining traction. Six have launched this year, including two just last week from Crossmark, led by industry veteran Bob Doll, and the segment now holds roughly $10 billion in assets. The funds aim to align investment strategies with religious values, but that often means a stronger focus on beliefs than returns. Plus, like ESG or tech funds, many end up looking similar to S&P 500 products, only with higher expense ratios. While clients may be looking to practice what they preach, it’s up to advisors to make sure any investments are truly aligning with their values and financial goals.

“Are you just buying an expensive S&P 500 tracker at the end of the day?” asked Daniel Sotiroff, Morningstar research analyst.

Keeping the Faith

Currently, there are 46 faith-based ETFs in the US — 38 Christian, 7 Muslim and 1 Jewish — according to Morningstar. And year-to-date, they’ve seen roughly $832 million in inflows, per CFRA Research.

Some funds have strict filters. The Inspire 100 ETF (BIBL), for example, excludes companies with ties to abortion, LGBT activism, gambling and more. Its largest holding is Caterpillar, and it doesn’t contain any of the Mag 7. Similarly, the SP Funds S&P 500 Sharia Industry Exclusions ETF (SPUS) omits over half the index for non-compliance with Sharia law, and it has slightly underperformed the broader market.

“The goal of these funds is generally not to generate alpha; rather, it is to be a faith-aligned alternative to a core holding,” said Aniket Ullal, head of ETF research & analytics at CFRA Research. 

Not So Different, You and I. Then there are also faith-based funds that come off as fairly typical: 

• The JLens 500 Jewish Advocacy US ETF (TOV), which aims to combat antisemitism, and the Global X S&P 500 Catholic Values ETF (CATH), the largest Christian ETF, have quite a lot in common with the Vanguard S&P 500 ETF (VOO).
• When compared with VOO, TOV and CATH have “active shares” of 4.7% and 17%, respectively, according to Morningstar. The lower an active share, the more alike two funds are in terms of holdings, weight and strategy.
• But while VOO’s expense ratio is just 0.03%, TOV’s and CATH’s are significantly higher at 0.18% and 0.29%, respectively. 

“Some faith-based funds look very different to a comparable broad market fund, but then others might just have a light touch and very low active risk,” Sotiroff told ETF Upside.