The ETF Crusades

Investing powered by higher powers

February 2023 Reading Time: 10 Minutes. Author: Rodolfo Martell

This research note is a guest post from Rodolfo Martell, PhD, Head of Portfolio Strategy, of Pluribus Labs LLC, a San Francisco-based systematic active equity manager that is part of Exos Financial.


  • Religious-themed ETFs have increased their AUM to roughly $1 billion
  • 3 / 4 products outperformed their benchmarks since 2020
  • The outperformance can be attributed to their factor exposures


Before ESG investing became fashionable (and subsequently unfashionable, depending on your views and/or current market trends), there was values-based investing. In its simplest form, values-based investment allows an investor to express religious beliefs through financial instruments, albeit in the crudest of forms: via exclusions.

Exclusionary investing uses, as the name suggests, filters based on cultural, religious, or spiritual beliefs to exclude companies or entire industries from an investment portfolio. Some of the oldest operating funds of this type focus on simple specific exclusions, for instance, eliminating guns, oil and fossil fuels, nuclear power, and / or no sin stocks (tobacco, alcohol, gambling) (read ESG Investing: Too Good to be True?). While their simplicity (in objective and method) made for very appealing marketing, investment professionals quickly pointed out the main objection to an exclusions-based approach: their inherent inefficiency since a foundational tenet of modern portfolio theory is that more assets in an investment universe is preferred to fewer. Further, active managers have an even cleaner argument in the fundamental law of active management (Grinold and Kahn, 2000).

In this note, we will focus on a narrow set of exclusionary funds constructed according to religious beliefs. Specifically, we will look at the performance and popularity of Catholic values and Islamic values ETFs. Catholic funds follow indices like the S&P 500 Catholic Values Index, which are constructed following the Responsible Investment Guidelines of the Conference of Catholic Bishops, including screens for weaponry and child labor. Islamic funds, on the other hand, offer exposure to stocks from a benchmark that comply with Shariah investment principl