What is CATH? (Pros, Cons, and Strategies)
Investing in line with your values is more accessible than ever. One notable example is CATH, a custom ETF that aligns investments with Catholic values. If you're considering adding CATH to your portfolio, understanding its unique features is crucial. Let’s dive deeper into what CATH is, its benefits and drawbacks, and strategies for incorporating it into your investments.
What is CATH?
CATH stands for Global X S&P 500 Catholic Values Custom ETF. It tracks the S&P 500 Index but excludes companies that do not comply with the Socially Responsible Investment Guidelines outlined by the United States Conference of Catholic Bishops.
CATH aims to provide investment returns similar to the S&P 500 by investing in large-cap U.S. stocks while adhering to principles reflecting Catholic doctrine. This means excluding companies involved in activities such as abortion, contraception, stem-cell research, and other practices deemed morally wrong by these guidelines.
Key Features of CATH
- Alignment with Catholic values and investment guidelines
- Excludes certain industries such as pharmaceuticals involved in contraception or abortion, and companies involved in human rights abuses
- Predominantly made up of large-cap U.S. companies
By following these guidelines, CATH filters out a high number of companies that investors following these principles would prefer to avoid.
CATH Composition
CATH consists of large-cap companies that are key players in their industries but meet ethical investing standards. Some of the prominent holdings may include names like Apple Inc. (AAPL), Microsoft Corp. (MSFT), and Alphabet Inc. (GOOGL). The fund aims to mimic the performance of the S&P 500, minus the exclusions based on Catholic values.
Pros of CATH
Ethical Investing
One of the standout advantages of CATH is the ethical alignment with Catholic values. For investors who wish to ensure that their investments do not support activities contrary to these values, CATH provides an excellent means to do so without having to vet individual stocks.
Diversification
Because it closely follows the S&P 500 (minus ethically excluded companies), CATH offers a diversified investment in large-cap U.S. stocks. Diversification is a central principle for reducing risk in an investment portfolio.
Comparable Performance
CATH aims to deliver returns that are similar to the S&P 500, making it a compelling option for investors seeking market-like returns but who wish to avoid particular sectors or businesses.
Low Expense Ratio
Like its counterpart SCHD, CATH also features a relatively low expense ratio at approximately 0.29%, making it cost-effective compared to other niche or value-driven funds.
Cons of CATH
Exclusion of Potentially High-Performing Stocks
One downside is that by excluding certain sectors or companies (such as those in the biotechnology or pharmaceutical industries), investors might miss out on potentially high-performing stocks. This could affect the overall performance, especially in bullish sectors that are excluded.
Sector Allocation Imbalance
With the exclusion of entire sectors, CATH might have a different sector allocation compared to the S&P 500, creating an imbalance. This could lead to underperformance or overperformance depending on the market conditions of the included sectors.
Limited Short-term Gains
CATH is more suited for long-term, ethical investing rather than seeking short-term capital gains. The exclusion criteria may limit rapid growth opportunities that other ETFs might exploit.
CATH Investment Strategies
CATH offers an intriguing proposition for long-term, values-driven investors. Although it might not be ideal for those seeking short-term profits, its alignment with ethical guidelines and S&P 500 returns potential make it worthy of consideration for long-term portfolios.
Long-term Commitment
CATH is best-suited for investors with a long-term horizon. By consistently investing in CATH over a period of 10 years or more, you can ride out stock market volatility while benefiting from the ethical alignment of the fund.
Ethical Portfolio Diversification
CATH can be an excellent component of a diversified portfolio for those who wish to invest in line with their morals without sacrificing returns. Pair it with other broad-market or sector-specific ETFs to balance your investment risk and potential returns.
Values-Based Reinvestment
By reinvesting dividends received from CATH, investors can enhance their portfolio growth through compounding while ensuring that these additional investments align with their ethical values. This strategy helps in growing the investor’s portfolio consistently over the long term.
Conclusion
CATH represents a compelling option for those searching for a method to invest in large-cap U.S. stocks while adhering to Catholic values. Its alignment with ethical guidelines provides an opportunity for moral and financial returns. While it has its limitations, such as the exclusion of certain high-growth sectors, it remains a strong choice for long-term, values-based investors.