Markets have been gloomier recently, but a new exchange-traded fund (ETF) has some investors seeing the light.
Investors of faith who have a new, themed ETF to consider.
On Tuesday, October 3, Sovereign Capital – a brand new asset manager – launched its debut ETF – The Sovereign’s Capital Flourish Fund (“SOVF”), on the New York Stock Exchange, Arca. Biblical values are at the core of the fund’s approach to investing.
Yet this is no act of blind faith ‘Hail Mary’ play – the fund’s allocation still rests upon fundamental analysis of firms, such as business quality, returns on capital, balance sheets, cyclicality, and other factors.
SOVF holds a diversified portfolio of between 80 and 100 publicly traded companies. Some of its top holdings include Super Micro Computer, Primerica, Euronet Worldwide, Cisco Systems, and Coca-Cola.
Sovereign’s Capital has a unique ranking methodology to assess whether a firm is “spiritually integrated” enough to enter their fund. This is based on six categories: CEO spiritual integration, HR benefits and policies, chaplaincy, vision/mission/values, employee resource groups, as well as products and services.
SOVF aims to select firms with selfless leaders that serve the greater good or manifest the so-called “golden rule” – doing unto others as you would have them do unto you.
The fund manager believes a firm’s corporate culture and the values that anchor it can create a distinct, lasting competitive advantage.
“We believe biblical values lead to strong cultures, which attract and retain talented employees,” the company said at the launch. “This, we believe, will contribute toward outperformance versus peer companies over the mid-to-long term.”
“We dedicate 99% of our time to searching for the needle in a haystack – companies with faith-driven CEOs who are developing exceptional corporate cultures that seek outperformance and enable employees to flourish,” reads a statement on its website.
Investing is Believing
Sovereign Capital is not the only religiously-inspired ETF on the market.
The proliferation of ETF products (Morningstar estimates there are over 10,000 mutual funds and ETFs in the U.S. alone) has led to ever-more customized investing products. As thematic investing goes mainstream, more money managers appeal to people’s hearts as much as their wallets.
Some spiritually-powered funds have ballooned in size. For instance, Inspire, which claims to be the world’s largest faith-based ETF provider, managed over $1.1 billion in assets as of March 31 this year.
Faith-based funds have also aligned with “impact investing” efforts, putting social outcomes ahead of profit. Yet such values-informed investing goes beyond the bounds of traditional religions, too.
The rise of ESG investing (an acronym for environmental, social, and corporate governance) has propelled progressive values into many products. By some estimates, capital raised for private markets ESG funds tripled during the pandemic, from $29 billion in 2020 to $92 billion in 2022.
On the other side of the ideological spectrum, Strive Asset Management, founded by Republican candidate Vivek Ramaswamy, has launched a string of funds that promote themselves as being “for-profit” and “anti-ESG” (an acronym for environmental, social, and corporate governance).
While most secular ETFs are assessed purely on their economic/financial metrics, like volatility and profitability, investing in SOVF may also be a moral, and thus highly subjective, matter. However, if the firm’s investing thesis holds, virtuous values embedded within these companies will also prove profitable over time.
The fund comes with an expense ratio of 0.75%.