In part 1, we discussed secular “ESG” investing choices and did an overview of GuideStone’s negative investment screening. In this post, we’ll look at some firms that claim positive screening and consider whether these are worthwhile for the individual investor. We’ll then consider the costs of such fund choices and whether they are worth their fees.

I’ll be re-using some jargon that I explained in part 1. Minimally, you’ll need to know the differences between (1) an actively-managed fund versus an index fund, and (2) a traditional mutual fund versus an ETF (exchange-traded fund). You’ll also recall that “socially responsible investing” and ESG (environmental, social, governance) are industry terms for funds that attempt to screen out morally undesirable companies and potentially give higher weight to “good” companies. When I say “socially responsible” or “Christian” in reference to investment funds, I’m not going to repeat obnoxious quotation marks every time, but I’m also not asserting that all socially responsible funds are qualitatively socially responsible, etc. I also may use ESG and socially responsible interchangeably when appropriate.

There also exists the marketing term “Biblically Responsible Investing” or BRI. Given the nature of Things Above Us as a theological blog and the small size and number of firms using BRI as a moniker, I’m actually going to just collect these among the socially responsible funds. The context will make clear which ones are Christian versus secular, and I don’t want to risk ruining the term “biblically responsible,” as I think it’s usable outside of an investing context.

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If you are an investor who is considering socially responsible or ESG investing products, you should consider why before determining the whether and the which. The why would likely a be one or a combination of the following reasons:

1. You have a moral conscience issue investing in funds that do not screen out immoral companies.
2. You desire to make a positive social impact upon the world and/or express your moral viewpoint through your investing.
3. You believe that screening out immoral companies and/or increasing investment weight towards moral companies will improve performance and/or reduce risk.

GuideStone’s marketing mostly appeals primarily to reason 1 with a small appeal to reason 3. The companies I’ll highlight in this post vary in their marketing among these three reasons.

A Sampling of Other Christian Investing Firms

Do note that these are investing firms, not churches or seminaries. I’m not evaluating their doctrinal statements but their products primarily based on whether their screening or impact claims hold up to scrutiny. I’ll additionally highlight any glaring positives or negatives. Some of this will involve an evaluation of performance and fees. Many such firms openly call themselves ESG but also adopt the term “Biblically Responsible Investing” or BRI to distinguish themselves from secular ESG.

Inspire ETFs

Inspire ETFs boasts being “the world’s largest faith-based ETF provider, managing over $500 million in faith-based ETF assets.” In case you’re counting, this is a drop in the bucket compared to GuideStone Funds’ $9.2 billion in individual investor assets, which doesn’t include institutional assets and non-mutual fund assets. Inspire also definitely wins the catchy inspiring ticker name award for such symbols as BIBL, BLES, GLRY, RISN, and WWJD.

Inspire lists its negative screens to be pornography, alcohol, tobacco, gambling, bioethics, human rights, and LGBT activism. But rather than focus on the negative screens, they more prominently push the positive impact angle. Their positive screens include business model, product integrity and innovation, corporate governance, human capital, social impact, supply chain, environment, and sustainable energy use and production. If you’re the right-wing kind who isn’t too much into claims of human-caused climate change, this is the part where you might check out.

When checking Inspire’s funds in its own screening tool, Inspire Insight, it’s not surprising to see high “impact scores” among the underlying assets, as these impact scores are a major part of how the funds are constructed. Of course, they’re not going to throw themselves under the bus. In my own perusal of their SEC filings, I found a mere three securities that might raise an ethical eyebrow

• AmerisourceBergen — GuideStone actually screened this company out whereas Inspire includes it.
• China Telecom — This is likely to change quickly if not already due to President Trump issuing an executive order banning U.S. investment in certain Chinese firms with connections to China’s military. China Telecom is on this list.
• Plexus — a nutrition MLM, if you don’t like MLMs

As much as I personally dislike MLMs, Inspire made no claim to filter them out, so Plexus is no reason to fault them. And China Telecom, if you do consider this an issue, is soon to be a non-factor.

Inspire is a young firm; their oldest funds were established in 2017. Their performance can only be observed so long, but I haven’t observed any significant issues.

Timothy Plan

Timothy Plan is probably one of the oldest players in the Christian mutual fund business; its Small Cap Value fund came to be in 1994. Their filters as listed on their website include abortion, pornography, anti-family entertainment, marriage/lifestyle, human rights, gambling, tobacco, and alcohol. A flyer entitled “Know Your Investments” presents the prospective investor with a helpful chart of their negative screens applied to a sampling of popular stocks.

Although Timothy Plan is certainly part of the “old guard” as compared with newer players, they have branched out from their mutual fund roots and have started offering ETFs. It’s worth noting that the fee difference between their mutual funds and ETFs is substantial. While their ETFs charge 0.52%–0.62% annually, their mutual funds range from 1.06% to an astounding 3.31%. ETFs are universally cheaper for an investment firm to maintain than mutual funds, but 3.31%…yikes!

I question the effectiveness of Timothy Plan’s screening claims. In evaluating its Large/Mid Cap Core Fund ETF, Inspire Investing flags 32 securities for “LGBT philanthropy,” three securities for embryonic stem cell research, and one for cannabis. And let me reiterate, I am not suggesting that one should never invest in a fund with any of these issues, but funds that advertise that they screen such issues out should do what they say they do.

Unlike its younger counterparts, Timothy Plan has been around long enough for us to evaluate their long-term performance. Its most popular fund, the Large/Mid Cap Value fund (TMVIX), performed reasonably similar to a value index fund benchmark, though it trailed significantly from 2016 until 2020. The smaller and more expensive Small Cap Value fund (TSVCX), however, underperformed a small-cap value index ETF by 1.9% annually since 2004 while charging the investor especially high fees. Overall, I don’t feel comfortable recommending their products. Many of their fees are unacceptably high, and the products I have checked for performance leave me less than impressed at their active management.

Eventide

Eventide’s flagship fund Gilead came onto the market in 2008, and I would be amiss not to compliment its spectacular performance, gaining an average of 17.5% per year over its life span. The rest of the U.S. market was about 11.2% over the same time period. As of Christmas 2020, Gilead is up 42.9% for the year. Fund manager Finny Kuruvilla, take a bow. Nice job.

Eventide does not say anything in terms of negative screening. The purpose statement reads, “Eventide strives to honor God and serve its clients by investing in companies that create compelling value for the global common good.” They then give the prospective investor a list of core values, but these aren’t explicitly positive or negative investment screens.

The Inspire Insight tool lists one security out of Gilead’s 56 listed holdings as problematic due to LGBT philanthropy and abortion legislation. Other Eventide funds also get flagged for three or fewer holdings with LGBT flags on them. To be fair, Eventide makes no claim on negative screens, but these are impressively clean.

But before you become so enamored with Gilead’s performance that you drop everything and throw everything at it, you should also consider whether its performance will continue. Statistically, of the top one-half of mutual funds from June 2010 to 2015, only 38.6% remained in the top half over the next five-year period. Eventide Gilead most obviously made this cut. But in too many cases, mutual fund performance drops right after performance chasers jump onto the bandwagon. Gilead also comes with much risk. As of its June 30, 2020 annual report, the fund had only 63 total holdings, 55 of which were common stock. And, according to Morningstar, its beta (a mathematical measure of risk) over the last ten years was 1.2; the market’s beta by definition is 1.

I won’t be including Gilead in sample portfolios later due to its high fees and my own philosophy of not running at high performance. If you still wish to invest in it, you might want to limit it to a portion of your stock allocation rather than the whole thing. This even tempts me, and I’m very much an “index guy” if that’s not already apparent.

The Dollar Value and Social Impact of Screening

If you’ll recall from earlier in this post, I listed three reasons why an investor may choose ESG funds:

1. You have a moral conscience issue investing in funds that do not screen out immoral companies.
2. You desire to make a positive social impact upon the world and/or express your moral viewpoint through your investing.
3. You believe that screening out immoral companies and/or increasing investment weight towards moral companies will improve performance and/or reduce risk.

For now, I’ll touch on #1 and directly address #2.

Compared with a typical low-cost index ETF charging 0.03%, Christian screened funds are indeed more expensive, ranging from GuideStone Equity Index at 0.39% and on up from there. I also have not accounted for potential transaction fees, loads, differences in share classes, advisor fees, etc., but let’s keep this as simple as possible.

If we wish to quantify the cost of socially responsible investing, we need to consider the difference between two expense ratios and multiply by the size of the portfolio. That might look like the following table:

If we take a super-typical example here, let’s go with Guidestone’s most popular individual investor fund, the Balanced Allocation Fund (GGIZX), with a $50,000 holding. That’s easy math right there. A $50,000 holding in GGIZX costs $515 per year. In ITOT (iShares Core S&P Total US Stock Market ETF), an ETF that tracks the price of the entire U.S. stock market including the morally undesirable stocks costs $15.00. That’s a $500 difference. We then have two possible options to weigh: (1) the actual positive social impact of the Christian or ESG fund, and (2) the negative social impact of the non-ESG fund plus the good that can be done with $500.

Garrett, are you really saying you want to invest in bad things because they make you more money? You pig!

Even excluding the issues with GuideStone screening I listed in part 1, there are reasons to doubt the marketing claims of promoting positive impact and avoiding negative impact. We can think about the issue of positive impact by looking at the companies that ESG funds (Christian and secular) list as their top holdings. These aren’t charities; they’re just businesses. Business is good and important, but it’s not world missions or charitable relief work.

Concerning negative impact, the primary issue is that when you invest with a mutual fund or even buy an individual stock, your money rarely goes to the underlying company. Most securities on the market are on the secondary market. They have already been sold by the underlying company and have been getting traded around already. It’s a bit like buying The Purpose Driven Life at a used bookstore. Your money isn’t going straight to Rick Warren but to someone who gave it to someone else…who gave it to someone else…who gave it to someone else…times some unknown number…who gave it to Rick Warren. Where this illustration falters is that a used Rick Warren book isn’t paying you dividends (literally nor figuratively), and that may be a conscience issue (reason #1 above). Moreover, how many of these companies fail your personal negative screen (if you have one) may be quite large or quite small.

If that is not a conscience issue, then it becomes a matter of impact. While your investment money in a non-ESG fund does not show up directly in the accounts of entertainment companies, it does indeed send an infinitesimally small* demand signal upon the prices of their stocks,  assuming you are not a billionaire. What we then have to decide is what will make a more positive impact: (a) not sending demand signals to improve the stock prices of undesirable companies, or (b) giving the difference to the local church, a charity, or directly to someone in need.

Now I’m sure very few of us actually calculate this and write a check at the end of the year based on our mutual fund expense ratios, but you could indeed do so after intentionally reducing all kinds of budgetary costs, not just investing fees. On the other hand, that saved money within the investment account continues to compound. So in fact, the appreciated value of that difference could be much more than just the $500 difference we calculated earlier. And that amount could indeed do much good providing for ourselves or others in our later years.

Conscience, Geopolitics, and Your Big Picture

When it comes to the conscience issue, Romans 14 is the operative passage of scripture. In part 3, I’ll present some arguments as to why one’s conscience need not be bothered. However, (1) I might not convince you, (2) some of you may in fact be forced into a family of socially responsible investments, and (3) most of you might be forced into non-ESG investments. With that in mind, we’ll then consider performance and risk issues in investments, consider the big picture of your financial planning, and touch upon a bit of a geopolitical issue where even I might look like a socially responsible investor. See you in part 3.

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