FAith-based ETFs have continued to gain attention as investors increasingly seek to align their investments with their moral principles.
In 2015, the Knights of Columbus, a worldwide fraternal organization of the Catholic Church, launched an investment management company called Knights of Columbus Asset Advisors (KoCAA) to give Catholics the opportunity to invest their income in a socially responsible investment strategy.
Earlier this week, KoCCA partnered with new ETF issuer Faith Investor Services to launch its first ETF, the FIS Knights of Columbus Global Belief ETF (KOCG).
I met up with Michael Skillman, CEO of Faith Investor Services, to ask him a few questions about the new fund.
Tom Lydon, CEO, ETF Trends: What motivated the launch of KOCG?
Michael Skillman, CEO, Faith Investor Services: There are approximately 70.4 million Catholics in the United States. More than 2 million of them are part of the Knights of columbus, which is headed by the Supreme Knight Patrick E. kelly. The organization was founded in 1882 by the priest Michael J. McGivney as an immigrant aid society in the United States. The Knights of Columbus is dedicated to the principles of charity, unity, brotherhood and patriotism.
We believe that those committed to living a life of faith and service are looking for a fund managed by the Knights of Columbus. Many Catholics and like-minded people wish to invest in publicly traded companies. They want to diversify their hard earned money and build strong portfolios for themselves and their families.
As we scoured the landscape of investment opportunities, we found few viable options for people of faith to maximize their portfolios while staying true to their beliefs. That’s why we created Faith Investor Services and partnered with the Knights of Columbus to launch KOCG. KOCG was designed to empower individuals to invest in global companies that match their values.
Lydon: What is faith-based investing?
Skillful: Faith-based investing is exactly what it says. It is a way of investing money that takes people’s religious values into consideration. Faith-based investing allows investors to align their integrity with how they allocate their capital. We omit and select stocks based on how companies align with Catholic values.
For example, our fund is right to live. Therefore, we will not add to KOCG a company that derives its income from abortion. This is not only found in pharmacy related companies, but also in companies like Amazon (AMZN). Amazon owns PillPack, which distributes Plan B; thus, we will not own Amazon. Likewise, we are looking for companies that promote practices consistent with religious beliefs such as banking practices, etc.
Lydon: What sets this product apart from other faith-based investment funds?
Skillful: An active approach is crucial to ensure that all investments in the fund are consistently aligned with Catholic values and generate returns. Unlike other ETFs in the market, this fund is actively managed and adheres to the strict guidelines set out by the United States Conference of Catholic Bishops (USCCB).
To ensure that we meet this criterion, the Knights of Columbus Asset Advisors (KoCAA) continuously under-advise the fund and provide guidance on security selection. Additionally, KoCAA has a full-time theologian to help interpret the USCCB principles for the investment team.
Lydon: How does the fund decide what to invest in?
Skillful: As mentioned, KOCG seeks to invest in companies that meet socially responsible investment guidelines provided by the United States Conference of Catholic Bishops. The fund mainly selects three main themes and removes businesses that derive income from contraceptives and abortives, pornography, embryonic stem cell research / human cloning, discrimination based on race or sex, unfair treatment of employees, nuclear weapons and other weapons of mass destruction, and other practices that conflict with USCCB guidelines.
The main central themes we are looking for are:
- Respect for life
Example: Our fund excludes pharmaceutical companies that earn income from abortives.
- The position of the Catholic Church on war and peace
Example: We can own a business that makes guns and ammunition, but we will not own Lockheed Martin for its involvement in nuclear weapons.
- Respect for human dignity
Example: Nike has been a very successful action; However, we don’t own Nike due to its poor work environment.
Lydon: Does this fund include ESG components?
Skillful: While the KoCAA has a long history of Catholic exclusion screening on its investment strategies, the inclusion of ESG criteria in the investment process has taken center stage over the past two years. They created the Responsible Investment Steering Committee (RISC) to ensure that these principles are fully integrated into the investment process.
We believe that understanding ESG risks provides a better understanding of portfolio companies. Identifying and analyzing financially important factors can mitigate long-term risk, potentially improving portfolio returns. ESG analysis contributes to a global understanding of a company, consistent with our hybrid investment approach. Simply put, including ESG factors in our analysis helps us make better investments.
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