Crypto News: ETF IQ: Biblically responsible investing

Welcome to ETF IQ, a weekly newsletter dedicated to the $12 trillion global ETF industry. I'm Bloomberg News reporter and anchor Katie Greifeld.

The Securities and Exchange Commission handed down an interesting penalty last week: Inspire Investing LLC was ordered to pay a $300,000 fine for making misleading statements and execution of its "biblically responsible investing" strategy.

There's a lot to dig into there. Let's start with the parallels between environmental, social and governance investing, and what Inspire does. There's at least two schools of thought when it comes to principles-based investing:

You want to put your invest dollars into companies that align with your values.
You believe the companies that comply with your values will outperform over time. (For example, you might invest in an sustainable firm because you think that it will weather climate change better than its less-environmentally conscious competitors.)

Now, those two aren't mutually exclusive. But it's a fun thought exercise: If you approach investing with the second mindset, are you buying the Inspire 100 ETF (ticker BIBL) because you believe that God will help you beat the index?

This newsletter doesn't have the answer.

Meanwhile, Inspire's ETFs continue to trade. BIBL is the firm's biggest, commanding about $343 million in assets. The firm is also home to the Inspire International ETF (WWJD) and the Inspire Momentum ETF (GLRY).

BIBL's website says that the fund is managed according to "biblically responsible investing standards, seeking to create meaningful impact in the world and help investors align their investments to support biblical values." That selection process translates into a portfolio of just over 100 stocks, whose biggest weightings include Caterpillar, Intuitive Surgical and Progressive.

That has yet to produce best-in-class returns. BIBL has climbed nearly 105% on a total return basis since its 2017 inception, lagging the S&P 500's nearly 150% gain over the same period.

This week saw the arrival of the first ETF with 'money market' in its name. The industry isn't sure how to feel about it.

The Texas Capital Government Money Market ETF, which trades under the ticker MMKT, is the first-of-its-kind in that it follows Rule 2a-7 — a provision of a 1940s Securities and Exchange Commission law that governs money-market funds. It has all the same holdings, too: 99.5% of MMKT's portfolio must be in cash or government securities, with maturities ranging from overnight repurchase agreements to as long as 13 months.

However, there is one huge difference between this ETF and your traditional money-market mutual fund: MMKT won't maintain a stable net-asset value of $1.

Without that $1 NAV — a staple of all government and retail prime money-market funds — some argue that the fact that MMKT falls under Rule 2a-7 is a distinction without meaning. And it's true, there are plenty of cash-like ETFs on the market.

However, existing short-dated bond ETFs have a little bit more wiggle room. Take the $34 billion SPDR Bloomberg 1-3 Month T-Bill ETF (ticker BIL) — while virtually all of the fund's holdings are in short-dated government paper, BIL's prospectus only mandates that at least 80% of its assets be in such holdings.

So who is this for? In the eyes of Coalition Greenwich's Kevin McPartland, MMKT could serve as a worthwhile building block in portfolios that hold only ETFs.

"One obvious use case I see is if you had a robo-advisor account that used ETFs to create asset class allocations, this could be used for the cash component," said McPartland, head of market structure research at Coalition Greenwich.

Assets in US-listed ETFs hit $10 trillion for the first time as the investor-friendly products continue their relentless takeover of Wall Street.

Another Wall Street sell-side research firm is looking to make inroads into the ETF world — this time with actively managed quant funds.

A pair of new funds want to lure in investors with a slate of electricity firms riding incessant power demand, fueled by the artificial intelligence boom.

In this week's Drill Down on Bloomberg Television's ETF, First Trust's Ryan Issakainen stopped by to talk about the First Trust Bloomberg R&D Leaders ETF (ticker RND). The fund's starting point is the Bloomberg US 1000 Index, which it then whittles down to the top 90th percentile of companies with the largest free float market capitalization and which have increased spending on research and development for three consecutive years.

That produces a portfolio of about 50 names. Meta Platforms, Apple, Nvidia, Amazon and Microsoft rank among RND's biggest weightings — all well-established companies. That's by design, Issakainen said.

We think there's a compelling link between the amount you're spending on R&D, the increase in spending on R&D, and the innovations that come from it, especially when you're dealing with mature companies... You want to make sure that these companies are not just large and mature and instead of just paying out all their cash flows in dividends, if they've got R&D, and they're increasing R&D, that means they see opportunities to grow in the future through innovation.

RND carries an annual expense ratio of 60 basis points and has climbed about 19% on a total return basis since its late April inception, versus roughly 14.7% for the S&P 500.

Vident Asset Management's Amrita Nandakumar and Andrea Eisfeldt of the Anderson School of Management at UCLA join me, Eric Balchunas and Scarlet Fu on Bloomberg Television's ETF IQ. Watch live on Mondays at noon on Bloomberg Television, on the Bloomberg Terminal at TV <GO> and on YouTube.

Stay updated by saving our new email address

Our email address is changing, which means you'll be receiving this newsletter from noreply@news.bloomberg.com. Here's how to update your contacts to ensure you continue receiving it:

Gmail: Open an email from Bloomberg, click the three dots in the top right corner, select "Mark as important."
Outlook: Right-click on Bloomberg's email address and select "Add to Outlook Contacts."
Apple Mail: Open the email, click on Bloomberg's email address, and select "Add to Contacts" or "Add to VIPs."
Yahoo Mail: Open an email from Bloomberg, hover over the email address, click "Add to Contacts."