{"id":2910,"date":"2022-06-10T18:31:48","date_gmt":"2022-06-10T18:31:48","guid":{"rendered":"http:\/\/blog.valuengine.com\/?p=2910"},"modified":"2023-06-28T04:47:29","modified_gmt":"2023-06-28T04:47:29","slug":"traditional-values-driven-etfs","status":"publish","type":"post","link":"http:\/\/blog.valuengine.com\/index.php\/traditional-values-driven-etfs\/","title":{"rendered":"Traditional Values-Driven ETFs"},"content":{"rendered":"

I have written a lot in my blog analyzing and differentiating ESG, sustainable and impact ETFs.\u00a0 In 2020 and 2021 on a percentage basis, this segment was among the fastest growing in the ETF marketplace. Moreover, during most of that time, the market performance of these funds validated the concept that investing in ESG ETFs did not require sacrificing returns. In 2022, the stocks of many of these funds fell out of favor and some of these funds had returns even more negative than the S&P 500. However, most of the investors, especially on the impact side, understand that these value-aligned investments are for the long-term and will occasionally suffer negative performance.<\/span><\/p>\n

All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 500 ETFs have been updated on <\/b>www.ValuEngine.com<\/b><\/a><\/h5>\n
Free Two Week Trial to all 5,000 plus equities and ETFs covered by ValuEngine <\/b>HERE<\/b><\/a><\/h5>\n

Recently however, there has been a lot of pushback against ESG investing including but well beyond sub-index returns in recent months.\u00a0 In the USA recently, many Republicans including former Vice President Mike Pence in a Wall Street Journal Editorial railed against ESG.\u00a0 Elon Musk recently echoed these sentiments.<\/span><\/p>\n

A key excerpt follows, \u201cthe shift is entirely manufactured by a handful of very large and powerful Wall Street financiers promoting left-wing environmental, social and governance goals (ESG), and ignoring the interests of businesses and their employees.\u201d\u00a0 In response, Morningstar ESG expert Jon Hale wrote a scathing article that was reprinted in the ESG Advisor entitled, \u201cWhy the Right Hates ESG\u201d where he refutes Pence\u2019s and claims of other GOP politicians.\u00a0 It is also receiving a lot of attention in LinkedIn and other social media.\u00a0<\/span><\/p>\n

Elsewhere, from a statistical perspective, I have written articles (available upon request) evaluating the data from ESG ratings providers.\u00a0 There are more than a dozen providers and no two of which rate every company the same.\u00a0 Most of the ratings providers (S&P Global, MSCI, Morningstar\/Sustainalytics, Refinitv, ISS ESG, etc.) use disclosed statistical formulas to calculate their ratings, making Musk\u2019s and Pence\u2019s claim that the ratings are subjectively manufactured rather outrageous.\u00a0 The devils of the ratings are in the details, and there is certainly no uniform agreement in the actual ratings companies assign or how they calibrate their formulas. One commonality is that the underlying data points are based upon the concept of accepted best practices.\u00a0 Most of these, such as employee training, eliminating \u201cpoison pills\u201d, minimizing fines levied due to government violations, ethical behavior, etc., have been shown in research pieces to result in superior income statement performance over periods 5 years and longer.\u00a0 In other words, following best practices is representative of companies that are proactive, not reactive.<\/span><\/p>\n

That said, let\u2019s look at the origins of ESG and some ETFs that align personal values that could not objectively be classified as left-wing. Some of them come directly from the origins of socially responsible investing (SRI). Since 1928 in the USA, SRI mutual funds had their original roots in avoiding investments in companies engaged in \u201csinful\u201d practices according to various church doctrines.\u00a0 In the 1980s, this expanded to include ethical violations, human rights problems, acting against the interests of shareholders and the public, and environmentally dangerous practices.\u00a0 Mutual fund companies such as Calvert, Pax World (now Impax) and Domini all had their roots in religious and corporate citizenship values.<\/span><\/p>\n

Investors concerned primarily with the environment and\/or social change are not the only groups looking to align their investments with personal convictions and values. There are more than a dozen US-domiciled and listed ETFs that provide socially responsible investing aligned with Christian and patriotic values.\u00a0 We analyze six such funds, three aligned with Christian values and three aligned with what the issuers consider to be American patriotic values.<\/span><\/p>\n

Current ValuEngine reports on these ETF\u2019s can be viewed <\/b>HERE<\/b><\/a><\/h5>\n

BIBL<\/b>, Inspire 100 ESG ETF. BIBL uses the Inspire Impact Score methodology to seek out investments in the most inspiring, biblically aligned companies in the U.S., applying a faith-based perspective to environmental, social and governance (ESG) criteria when evaluating a company\u2019s operations. The ETF holds US large-cap stocks that align biblical values with positive impacts on the world as measured using various environmental, social, and governance (ESG) criteria. The methodology excludes stocks with any degree of participation in activities such as abortion, gambling, alcohol, tobacco, human rights\u2019 violations, pornography and promoting alternative family lifestyles. Index components are reviewed semi-annually and rebalanced annually.<\/span><\/p>\n

FEVR, <\/b>Inspire Faithward Large Cap Momentum ESG ETF. FEVR is actively managed and seeks to maximize growth with lower volatility than the broader U.S. Large Cap stock market. To do this,<\/span> FEVR<\/b> combines the subadvisor\u2019s expertise in technical analysis with high long-term growth potential based on the company\u2019s financial health, earnings trends, valuation, risk and relative strength.\u00a0 Companies involved in abortion, gambling, alcohol, tobacco, human rights\u2019 violations, pornography and promoting alternative family lifestyles are excluded from the portfolio.\u00a0<\/span><\/p>\n

TPHD<\/b>, Timothy Plan High Dividend Stock ETF. <\/span>TPHD<\/b> tracks a volatility-weighted index of US high dividend large-caps screened for Christian values. TPHD sets its universe by selecting from a parent index of high dividend volatility-weighted US large-caps. From there, the fund adds its values-based screen using Biblically Responsible Investing (BRI) criteria. The Fund will not knowingly invest in securities issued by any company involved in the production or wholesale distribution of alcohol, tobacco, or gambling equipment, gambling enterprises, or which is involved, either directly or indirectly, in abortion or pornography, or promoting anti-family entertainment or alternative lifestyles. Among qualified stocks, the funds index will select the 100 highest-yielding.<\/span><\/p>\n

FLDZ, <\/b>RiverNorth Volition America Patriot ETF. Offered as part of the True Shares family of ETFs, <\/span>FLDZ <\/b>is designed to do double-duty as a US-focused core equity portfolio and supports patriotism by donating all profits and the majority of advisory fees derived from managing the Fund to Folds of Honor, a nonprofit organization providing the families of fallen and disabled service members with educational scholarships.<\/span> The actively managed ETF seeks capital growth through a diversified portfolio of US-based, US publicly listed companies that are tied to the economy of the US. A key differentiator is that companies selected for the portfolio must generate at least 90% of their revenues in the United States.<\/span><\/p>\n

ACVF, <\/b>American Conservative Values ETF<\/span>. <\/b>ACVF is an actively managed fund which seeks to invest in 400 to 600 US large cap companies across all sectors that represent “political conservative values.” The adviser continually evaluates companies for inclusion based on financial reporting and data sources, such as, but not limited to: press releases, social media, advertising, lobbying efforts, data from Federal and State Election Commissions, market research, surveys, polling, as well as Fund Investor sourced research and opinion. A process of nomination also takes place quarterly, where Fund Investors may vote to include a company into the fund. A winning nomination is not binding, and final inclusion is still at the discretion of the adviser.<\/span>\u00a0<\/b><\/p>\n

EGIS, <\/b>2ndVote Society Defended ETF<\/span>. <\/b>EGIS is an actively managed fund of large- and mid-cap US companies that meet 2nd Amendment and border security social criteria. From the remaining eligible stocks sub-adviser Laffer Tengler Investments, Inc., (LTI) selects between 30 and 40 stocks it deems most likely to generate the best shareholders returns using fundamental quantitative and qualitative analysis factors.<\/span><\/p>\n

For our statistical comparison, we use two benchmarks for the Nasdaq-100 index inspired ETFs: <\/span>VOO<\/b>, the Vanguard S&P 500 ETF and <\/span>ESGU, <\/b>the iShares ESG Aware MSCI USA ETF.<\/span><\/p>\n

Current ValuEngine reports on these ETF\u2019s can be viewed <\/b>HERE<\/b><\/a><\/h5>\n220610 American Values blog Table<\/a>\n

 <\/p>\n

Current ValuEngine reports on these ETF\u2019s can be viewed <\/b>HERE<\/b><\/a><\/h5>\n

Observations<\/b><\/p>\n

    \n
  1. From a past 12-month performance perspective,<\/span> TPHD<\/b>, the Timothy Plan High Dividend ETF is clearly the winner.\u00a0 Its 12-month price return of +8.9% is 1020 (+10.20%) basis points higher than <\/span>VOO <\/b>and 1700 basis points higher than Inspire 100 ESG Biblically Responsible ETF, <\/span>BIBL, <\/b>the AUM leader in the Biblically Responsible Investing ETF space. <\/span>TPHD <\/b>also was alone in achieving positive year-to-date and three-month price returns.\u00a0 Returning to its methodology description, the index used by <\/span>TPHD <\/b>screens for the top 100 stocks combining above average dividend yield with low volatility. The ETF also has the second lowest P\/E and P\/B valuations, both considerable below <\/span>VOO. <\/b>The distribution dividend yield of 1.9% is close to 25% higher than <\/span>VOO <\/b>and tied with <\/span>FLDZ for highest.<\/b> As we\u2019ve detailed recently in other blogs, this underlying strategy has powered the top-performing industry-diversified ETFs during the past 12 months.\u00a0 <\/span>TPHD <\/b>appears to be a solid choice for conservative income-oriented investors who wish to limit their underlying investments to the stocks of companies in compliance with their Christian values. As can be seen by the underperformance of its three-year price return, <\/span>TPHD<\/b> should be expected to participate in positive returns but underperform <\/span>VOO <\/b>and earnings-growth themed ETFs in higher-than-average return markets.\u00a0 <\/span>\u00a0<\/b><\/li>\n
  2. Although it has the worst rate of return this year, FEVR, <\/b>Inspire\u2019s Momentum ETF is the only one rated by ValuEngine for above-average performance during the next six-to-twelve months.<\/li>\n
  3. The three Biblically Responsible ETFs all have AA ratings (second best) from MSCI, the same as <\/span>VOO, <\/b>and<\/span> lower only than the AAA (highest) of <\/span>ESGU<\/b> (almost by definition).\u00a0 In listening to many of my colleagues in ESG investing, many consider it a truism that Christian investing portfolios are the antithesis of ESG portfolios.\u00a0 It is simply not true.\u00a0 More than 50% of the holdings in <\/span>BIBL <\/b>and <\/span>FEVR <\/b>and just below half of those in <\/span>TPHD <\/b>are also in <\/span>ESGU<\/b>.\u00a0\u00a0<\/span><\/li>\n
  4. FLDZ <\/b>and <\/span>TPHD <\/b>have the lowest concentration of their assets from the top 10 holdings, 8% and 14% respectively. <\/span>EGIS <\/b>is the only ETF with a lower P\/E ratio than <\/span>TPHD.\u00a0 EGIS <\/b>is the second top performer for 12-months, 3-months and year-to-date, handily outperforming <\/span>VOO <\/b>in all three categories. <\/span>ACVF <\/b>has also outperformed <\/span>VOO <\/b>and <\/span>ESGU <\/b>in all four measurement periods since inception. In its 5+ months of existence, <\/span>FLDZ <\/b>also performed better than <\/span>VOO <\/b>and <\/span>ESGU <\/b>in the past 1- and 3- months as well as year-to-date.\u00a0<\/span><\/li>\n<\/ol>\n
    Financial Advisory Services based on ValuEngine research available: \u00a0 <\/b>www.ValuEngineCapital.com<\/b><\/a><\/h5>\n

    Conclusions<\/b><\/p>\n

    From a past performance perspective, only the two Inspire ETFs, <\/span>BIBL <\/b>and <\/span>FEVR<\/b> have delivered less than inspirational performance since inception. However, the limitations of past performance as a guide to future performance are well known.\u00a0\u00a0<\/span><\/p>\n

    From a portfolio construction perspective, I consider rules-based <\/span>BIBL <\/b>to provide reasonably prudent and diversified portfolio construction while defining well and meeting its values-based objective. <\/span>TPHD, <\/b>the other-rules based ETF, has executed its mandate very well since inception.\u00a0 The other four ETFs, all launched since the SEC instituted rules in 2019 that made active ETFs easier to launch and operate, spell out very prudent active portfolio construction methodologies and rules by which they remain true to their values.\u00a0 Therefore, all six ETFs reviewed here seem like prudent investments from the perspectives of portfolio construction and portfolio performance.<\/span><\/p>\n

    There are two potential concerns of which prospective buyers of all four active ETFs (<\/span>ACVF, EGIS, FEVR<\/b>, <\/span>FLDZ) <\/b>need to be aware: potential closure and liquidity. All four have AUM under $50 million which many ETF \u201cDeath Watchers\u201d claim to be the minimum threshold of viability.\u00a0 For many reasons, I believe this to be overstated and believe the threshold to cover their operational costs for ETFs that hold US-listed stocks of greater than $100 MM market cap to close to $15 million.\u00a0 From a liquidity perspective, there are two things to know. The first is that the liquidity of the ETF comes from its underlying securities. All four ETFs own very liquid US securities so a market maker should be able to provide a bid within a very tight spread even if the bid and ask on the screen might be 10 basis points apart.\u00a0 The second thing advisers and traders need to know and should know is that a limit order will take care of this problem most of the time. The exception is when you need to liquidate to get the money on that day.\u00a0 In general, all investors should avoid that situation.\u00a0<\/span><\/p>\n

    Furthermore, I also am in the minority of veteran ETF pundits who believes that under the new rules, the ETF structure evens the playing field, thus wiping out the historical advantage that passive cap-weighted ETFs have over active ETFs using the antiquated redeem-daily-in-cash traditional mutual fund structure. \u00a0 See my research paper here: \u00a0 <\/span>https:\/\/www.valuengine.com\/pub\/main?p=32<\/span><\/a><\/p>\n

    Therefore, I believe <\/span>ACVF, EGIS <\/b>and <\/span>FEVR<\/b> to be fundamentally sound and reasonably prudent alternatives for investors that share the values stated by the funds. Unfortunately, <\/span>FLDZ <\/b>is currently well below that level of viability.\u00a0 As someone who has written a published paper about military diversity, inclusion and training as an ESG factor, I have a rooting interest in seeing <\/span>FLDZ <\/b>succeed in its quest to help veterans and domestically focused companies at the same time.\u00a0\u00a0<\/span><\/p>\n

    Another consideration that investors should know is that even if the ETF sponsor makes the decision to liquidate the fund, the fund\u2019s underlying stocks still support the fund at NAV.\u00a0 Therefore, investors will get out whole.\u00a0 An ETF liquidation is NOT a bankruptcy so even with <\/span>FLDZ, <\/b>there should be no fear of losing everything, just fear of the disappointment of having a fund you invested in need to liquidate.<\/span><\/p>\n

    The relative paucity of AUM in these values-aligned-ETFs as compared with impact-, sustainability-, and ESG-aligned ETFs is considerable.\u00a0 The total assets in all of these ETFs combined is less than 0.4% of the assets in ESGU alone.\u00a0 So, why bother writing a column about these ETFs, especially when my personal values are more aligned with ESGU?\u00a0\u00a0<\/span><\/p>\n

    It is because as someone 65+ now living in Florida, I find myself speaking every week with people bemoaning the fact that there are no mutual fund or ETF options that match their personal values and convictions.\u00a0 Hopefully, this column will help make advisers aware that these options exist when speaking with clients they know to be deeply religious and\/or patriotic. As is the case with these funds, all investors are more similar than different with respect to each other. We all want to know what our options are.\u00a0\u00a0<\/span><\/p>\n

    By Herbert Blank<\/b><\/h5>\n
    Senior Quantitative Analyst, ValuEngine Inc<\/b><\/h5>\n
    www.ValuEngine.com<\/b><\/a><\/h5>\n
    support@ValuEngine.com<\/b><\/h5>\n
    _______________________________________________<\/b><\/h5>\n
    All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 600 ETFs have been updated on <\/b>www.ValuEngine.com<\/b><\/a><\/h5>\n
    Financial Advisory Services based on ValuEngine research available through <\/b>ValuEngine Capital Management, LLC<\/b><\/a><\/h5>\n
    Free Two Week Trial to all 5,000 plus equities covered by ValuEngine <\/b>HERE<\/b><\/a><\/h5>\n
    Subscribers log in <\/b>HERE<\/b><\/a><\/h5>\n

     <\/p>\n","protected":false},"excerpt":{"rendered":"

    I have written a lot in my blog analyzing and differentiating ESG, sustainable and impact ETFs.\u00a0 In 2020 and 2021 on a percentage basis, this segment was among the fastest growing in the ETF marketplace. Moreover, during most of that time, the market performance of these funds validated the concept that investing in ESG ETFs … Read more<\/a><\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[130,1,39],"tags":[2016,2012,2018,2017,2019,1962,1760,1761,1719,1733,2013,2015,1731,1510,2020,2014,28,1656,1531,1659,63,1768],"_links":{"self":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2910"}],"collection":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/comments?post=2910"}],"version-history":[{"count":6,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2910\/revisions"}],"predecessor-version":[{"id":3165,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/2910\/revisions\/3165"}],"wp:attachment":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/media?parent=2910"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/categories?post=2910"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/tags?post=2910"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}