Religion-Based ETFs Find Going Slow

The indexing strategies for these funds involve picking the 400 largest U.S. stocks and then eliminating companies that have behavior objectionable to the fund's focus religion.
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Investors aren't flocking to religion-themed ETFs so far.

Earlier this month, the

FaithShares Baptist Values Fund

(FZB)

,

FaithShares Catholic Values

(FCV)

,

FaithShares Christian Values

(FOC)

, FaithShares

Lutheran Values

(FKL)

and

FaithShares Methodist Values

(FMV)

joined the ETF universe.

On Monday, Dec. 21, the Catholic and Christian funds led the pack with 2,825 and 2,305 shares traded respectively. The Baptist, Lutheran and Methodist funds all had fewer than 200 shares of trading volume.

The indexing strategies for these funds involve picking the 400 largest U.S. stocks and then eliminating companies that have behavior that is objectionable to the religion in question. Depending on the fund, companies involved with tobacco, gambling, alcohol, weapons and pornography are left out.

After applying additional screens, like respect for the environment, treatment of workers, and community involvement, the underlying basket for each fund is whittled down to 100 stocks.

For example, the top two holdings in the Christian fund are

Brown Brothers Sweep

and

Nordstrom

(JWN) - Get Report

. The top two holdings in the Catholic fund are Brown Brothers Sweep and

Capital One

(COF) - Get Report

.

While the FaithShares funds are the latest ETFs to "track" a set of beliefs, they are not the only ETFs to do so. On June 29, newly minted issuer

Javelin Exchange Traded Shares

, launched the JETS

Dow Jones Islamic Market International Index Fund

(JVS)

on the

New York Stock Exchange

Arca platform.

JVS' objective is to track a group of Shari'ah-compliant securities. The underlying indexing strategy seeks to select the most liquid companies that comply with Shari'ah, or Islamic law.

What comprises a Shari'ah-compliant ETF? When it comes to JVS, what's excluded is perhaps more important. This ETF's underlying index cannot contain businesses involved with alcohol, conventional financial services, casinos and gambling, pornography, tobacco manufacturers, pork-related products and weapons companies. Companies classified in other industry groups may also be excluded if they are deemed to have material ownership of or revenue from the businesses mentioned above.

Currently, JVS counts companies like

BP

(BP) - Get Report

,

Novartis

(NVS) - Get Report

and

BHP Billiton

(BHP) - Get Report

among its top components. The top three sectors represented in the ETF are oil and gas, basic materials and health care, which comprise 28.97%, 20.96% and 18.14% of the portfolio, respectively. JVS has 100 underlying holdings, and an expense ratio of 0.68%.

JVS also has been unable to attract investor attention. According to data from the National Stock Exchange, JVS had amassed $14 million in assets as of Nov. 30. JVS also has a low three-month average daily trading volume of 4,500 shares.

Most popular ETFs have clear-cut objectives achieved through a straightforward indexing strategy. Religion and politics are difficult areas to argue, because each individual, even within a distinct group, interprets the views of the group differently.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.