How wide is the divide between virtue and vice?

A head-to-head analysis of two morality-based ETFs compares them from an ESG and performance perspective

How wide is the divide between virtue and vice?

As ETF makers develop more products to suit investors’ needs, there’s a natural tendency for funds with opposing philosophies to emerge. A case in point is ESG, where some thematic funds lean toward companies that align with specific criteria of virtue while others take contrarian positions in sectors that are more in line with vices.

Naturally, funds that fall on opposite ends of the morality spectrum should have minimal to no overlap in holdings. But how far apart would they be in terms of ESG quality and investment performance?

In a piece for, columnist Drew Voros considered two US-listed ETFs: the Inspire 100 ETF (BIBL) and the AdvisorShares Vice ETF (ACT). The actively managed ACT invests in US companies that are involved in alcohol-, cannabis-, or tobacco-related activities, whereas BIBL tracks a market-cap-weighted index of US stocks that fulfill a proprietary definition of biblical values.

Looking at the funds’ sector allocations, Voros found that ACT holds an over 50% exposure to consumer non-cyclical companies, nearly 25% in healthcare, and just over 18% in consumer cyclicals, with a sliver of assets going to basic materials. BIBL, meanwhile, has a relatively more varied portfolio with just over 30% in industrials, a little over 14% in technology, just under 14% in healthcare, a little over 10% each in financials and utilities, and the rest in energy, basic materials, consumer cyclicals, and consumer non-cyclicals.

“Unsurprisingly, there is no overlap in underlying holdings between these two funds’ biggest allocations,” Voros said. However, both have a sizable allocation to healthcare names — something he attributed to the fact that many firms in the sector are certified by the US Drug Enforcement Agency (DEA) to use cannabis for research.

Both funds, he added, are essentially large-cap funds. Though the products and services delivered by their portfolio companies put them in different parts of the equity-market pool, they have similarly weighted market cap averages — US$60 billion for ACT and US$52 billion for BIBL. They also stack up similarly in terms of average trading spreads (ACT with 0.32% and BIBL with 0.27%); many would likely be surprised to learn that they both get an ESG ranking of A based on MSCI’s fund-rating system.

“But ultimately, investors want to know about performance, and year to date, they’re side by side,” Voros said. He reported returns of 18.5% for BIBL and 18% for ACT. They have both underperformed the broad market as reflected by the 21.4% year-to-date performance of SPDR S&P 500 ETF Trust (SPY).

Looking at BIBL’s performance since inception in late 2017, he found that it trounced ACT (14.4% vs. 2.2%), though neither did as well as SPY over the period. The past 12 months have also seen BIBL outdoing ACT (4% vs. 2.41%).

“We have seen similar performance between ACT and BIBL this year after a pattern of underperformance by ACT, and both of them against the broad market,” Voros said. “Slicing up the broad market into vice and virtue portfolios in these instances is lagging in returns.”


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