NEW YORK (Reuters) - Making money in the markets is tricky enough on its own. Try doing it while staying faithful to your religious beliefs.
That challenge hasn't discouraged some investors from trying. Indeed, there is a growing number of faith-based exchange-traded funds that attempt to marry moneymaking with principles that are deeper and more meaningful than those of your typical trader.
In the spring, Silicon Valley-based Inspire Investing launched its Global Hope Large Cap and its Small/Mid Cap Impact ETFs, pledging to apply Christian values as a screen. Those products join Global X's Catholic Values ETF as part of a vanguard trying to figure out the right mix of religion and the markets.
"We have definitely seen growing interest in niche investment strategies of all sorts, including faith-based products," says Ben Johnson, director of global ETF research for Chicago-based research shop Morningstar. "There is a decent degree of product development going on, and the demographic data to justify it."
To be sure, we are not talking about billion-dollar behemoths here. Catholic Values ETF, for instance, has a relatively slim $100 million under management after a year of operation, although that figure has been trending upwards.
The fact that faith-based ETFs exist at all is a new and intriguing phenomenon and is a byproduct of two ongoing trends.
First, the stunning growth of ETF assets, as investors gravitate toward low-fee indexes instead of pricier actively managed funds.
And second, the desire to incorporate deeper values in the deployment of one's cash. This can be seen in the impressive growth of the ESG space (environmental, social and governance), where sustainability-minded retail investors have so far plowed $75 billion into 187 U.S.-listed retail funds and ETFs.
One potential danger of niche ETFs, of course, is that they will not attract enough assets to be worth the venture. In fact, a few years ago, the firm FaithShares rolled out a whole suite of faith-oriented products, only to shutter them when they did not acquire enough traction.
But that operator might have been a tad too early in its innovation, rather than wrong. Inspire's funds have garnered a respectable $80 million in their first six months.
"I believe that biblically responsible investing will be the fastest-growing investment niche over the next decade," says Robert Netzly, Inspire's president and chief executive.
But what does this investing approach mean, practically speaking? Which companies are said to align with religious values, and which are not?
Effectively, that rules out some firms in the healthcare space and some in industrials, according to Jay Jacobs, research director for Global X. The no-nos would include "stem cell research, adult entertainment, abortion, and weapons makers," Jacobs says.
That does not mean the fund manager underweights those entire sectors. If one company is scratched off their list because it manufactures ballistic missiles, for instance, the fund boosts its ownership of other industrials that do not.
This challenging business of selecting morally acceptable companies becomes even trickier when you consider that people of faith can, and do, differ in their own judgments.
There are plenty of Christians who are pro-choice or who believe in the benefits of stem cell research, for whom such investment products might not accurately reflect their own beliefs.
In the case of Global X, the firm does not take on such judgments, but leaves that heavy lifting to the U.S. Conference of Catholic Bishops. That conference has outlined its socially responsible investment guidelines, a screen that Global X applies to the S&P 500.
CATH's current top holdings, by the way: Apple, Microsoft, Facebook and Amazon. The fund has risen almost 12 percent year-to-date, and features a net expense ratio of 0.29 percent.
Looking at the faith-based trend Christianity, investment giant Blackrock, for instance, offers Islamic-oriented ETFs that are shariah-compliant. Those products are based in the UK, though and not currently available to American investors.
And while there are not any specifically Jewish-themed ETFs at the moment, an easy workaround is to simply buy Israel-focused funds. Among the largest are iShares' EIS, Van Eck Vectors' ISRA, and BlueStar's technology-focused ITEQ.
Juggling core values and full-on capitalism, however, remains a delicate business.
"These definitions are so inherently personal," says Morningstar's Johnson. "Everyone has different values, and what is right for me may not tick the same boxes for you. That is the trickiest piece of all."
(Editing by Lauren Young and Bernadette Baum)