Religion-based ETFs: Separated by faith only?

The concept of offering faith-based exchange-traded funds is novel, but the offerings available to prospective investors barely differentiate themselves from one another — and are often too expensive — according to a new report from Standard & Poor’s.

FaithShares Advisors LLC came out with the first series of faith-based ETFs at the end of last year and remains the only provider to offer such funds. Its five ETFs respectively screen out “sin” stocks, such as those related to gambling or pornography, that conflict with its investors’ religious beliefs.

The five funds, which together have $9 million in assets, are the FaithShares Baptist Values Fund (FZB), Catholic Values Fund (FCV), Christian Values Fund (FOC), Lutheran Values Fund (FKL) and Methodist Values Fund (FMV). Faith- Shares has committed to donating 10% of the net income from the ETFs to a charity or ministry supported by the fund’s donation.

Although FaithShares offers five faith-based funds, there is very little differentiation among the portfolios, contends the equity analyst who wrote the S&P report.

“Regarding the top 20 equity holdings, there is really not a lot of variation among the FaithShares ETFs,” Kenneth M. Leon wrote.

Also, the funds’ expense ratio of 0.87% is much higher than the average ETF expense ratio, which is around 0.2% to 0.3%, he said in an interview. “When you are getting close to 1% that’s like mutual fund expense ratio territory,” he said.

Having completely different holdings in each of the funds isn’t the point of having multiple faith-based offerings, said Garrett Stevens, CEO of FaithShares. “Where there are differences is important to the people who buy them,” he said.

For example, the Baptist Values Fund screens out alcohol, while the Catholic Values Fund doesn’t, he said.

“All of them can agree that Cummins Inc. makes good engines, which is why we invest in them,” he said. “Whether you believe you should have a glass of wine with dinner is a difference.”