Conscience-motivated investors have been able to avoid funding U.S. companies they find immoral for decades. Now there's a way to give them clergy-approved exposure to foreign equity in an exchange-traded structure.
The Global X S&P Catholic Values Developed Ex-U.S. ETF (CEFA) launched June 24 and in its first month is beating the EFA benchmark by a few basis points. While I suspect the performance gap will even out over time, investors are clearly not sacrificing returns here in exchange for moral clarity.
After all, the better established Catholic Values fund that mirrors the S&P 500 tends to stray from the broader index by infinitesimal amounts. Since inception in 2016, CATH investors have only sacrificed 8 basis points a year . . . at this rate, they'll give up less than 1 percentage point a decade.
And in exchange, they can sleep better, knowing that their investments aren't supporting companies that sell birth control products, employ children, peddle pornography, engage in stem cell research or otherwise break the moral code set down by the U.S. Conference of Catholic Bishops.
That's a good thing to point out to clients you know have strong religious beliefs and would like to keep their consciences (and portfolios) clean. I think quite a few would give up 1 percentage point a decade in order to make sure they're in line with church leadership.
After all, they're probably already engaged in active tithing and philanthropy. On those terms, a little performance drag is simply the price you need to pay for virtue. It's perceived as added value.
CATH has attracted a healthy $367 million over the last four years. Now CEFA gives those same investors a way to diversify into overseas markets without tainting the overall portfolio.
Of course global investing can be expensive. Similar propositions have been floated in a conventional mutual fund format, but charging 1.5% to 2.0% proved to be a tough conversation.
Global X is offering CEFA for 0.35%, which should meet much lower levels of resistance. After all, EFA itself still charges 0.32%, so 3 basis points a year should be trivial for all but the biggest institutional investors.
And when their hearts are in it, it's definitely a small price to pay.
