Faithshares is getting out of the Christian values exchange-traded fund business, confirming this week it will shutter its last remaining religious values-based ETF, the Christian Values Fund ETF (FOC), sometime next month.
Four other funds aimed at specific religious denominations -- including Catholics, Baptists, Lutherans and Methodists -- were closed in July.
“Partly it was a problem with a lack of marketing,” Faithshares CEO Garrett Stevens told On Wall Street. “We didn’t get out there as aggressively as we should have.”
Stevens said a second problem was timing: people just didn’t have any faith in stocks at the time the funds were launched.
“We got approved in 2009 and people just weren’t buying stocks then,” he said ruefully. At the point when Faithshares decided to close the last ETF down, the Christian Values Fund had only $3 million in invested assets.
Stevens said that the ETF format, which requires the establishment of an index operated by an independent third party, may be too inflexible for the highly idiosyncratic Christian investor community.
He explained that religious-values investors can be very picky about the categories of companies they are willing to invest in and are quick to demand that a company that in some way offends those values be dropped. That's something a mutual fund can do fairly easily but is much more difficult to execute with an ETF.
“Our Methodist ETF included Fed-Ex,” recalled Stevens, “and one of the churches that was investing in the fund called and said, ‘We can’t have Fed-Ex in the fund.’ I asked why not, and they said Fed-Ex was sponsoring a stadium in Washington called the Redskins Stadium and that it was a derogatory term. But you can’t just take Fed-Ex out of the index like that.”
Individual congregations and individuals often disagreed with the investment criteria of a particular denomination’s governing body, he added.
Faced with such intractable conflicts and little investor interest in its Christian Values ETFs, Oklahoma City-based Faithshares is getting out of the religiously affiliated investing business and taking its ETF registration experience to reincarnating itself as Exchange Traded Concepts.
In its new incarnation, the company will do all the research, legal, regulatory and back-office work to create private “white label” ETFs on demand for money managers seeking to have their own brand-named specialty ETFs.
Claiming the renamed firm will be able to bring new ETFs through the regulatory process in as little as 75 days, Stevens said, “This will give money managers who have high minimum investments to access the small investors they’ve been missing, and will also raise their brand visibility. As well, he said, “the transparency of ETFs will also give them credibility.”
Stevens claims to already have 40 clients “from all over the world” applying with private label ETF ideas.
Ironically, one of those is a manager with an idea for a Christian values ETF.