Do your civic duty on Election Day and vote, go to church on Sundays, but always bring a cool unemotional detachment to investing on Mondays.
That is a favorite theme of mine, one I hammer on in these pages all the time. It is why it is so important to separate your emotions from your investment portfolio. That was the reasoning behind a column I wrote last year questioning whether people should buy an exchange-traded fund based on biblical values. I have no problem with people wanting to feel good about their investments, but I also want them to realize what their choices potentially do to their returns.
Today, I want to see how well the Inspire Global Hope Large Cap ETF, with the ticker symbol BLES, has done in terms of returns and otherwise.
First, the benchmark: Finding a suitable one isn’t easy, as the fund’s holding are made up of 50 percent U.S.-based securities, 40 percent in developed-nation foreign securities and 10 percent in emerging markets. It invests in companies with market capitalizations of $5 billion or more. The closest comparable indexes are either the BlackRock Inc.’s iShares MSCI World ETF or perhaps State Street Corp.’s SPDR S&P 500 ETF Trust.
The fund lags both indexes in terms of returns at three months, six months, one year and since inception on Feb. 28, 2017.
The cost of the Inspire fund is another factor, at 0.61 percent, which is more than twice as much as the BlackRock product, which is 0.24 percent, and it is more than half a percentage point higher than the State Street product, at 9.5 basis points. That’s a pretty substantial drag on returns over a longer period of time.
My investment philosophy is that most of your portfolio should be in low-cost indexes. You should feel free to have some of your portfolio in non-indexes, but only if you can come up with a sound reason why you are moving a few percent away from what looks like a sure thing into something that might or might not be a better substitute. My preferences have been toward the Fama-French factor model focused on value, size and quality. If you want to deviate from that, well you should have a defendable reason.
Feel free to use 5 percent of your portfolio for your mad money, i.e., speculative or themed investments. But the bar for moving away from beta, or market-matching returns, in your pursuit of either above-market alpha or other factors is very high. Things get complicated when the portfolio shift is based on issues other than performance — ethics, politics, sustainable investing, corporate governance and social motivations. These all come with compromises.