Faith-based investing is a gradually expanding niche of the exchange-traded fund market, and the largest and oldest ETF focused on Christian values is the $344 million Global X S&P 500 Catholic Values ETF (CATH), a U.S. large-cap fund that invests in companies that adhere to investing guidelines set by the United States Conference of Catholic Bishops.

That fund now has a sibling with today’s launch of the Global X S&P Catholic Values Developed ex-U.S. ETF (CEFA), which invests in large-cap companies in developed markets outside of the U.S., and whose business practices mirror the same standards as those in the CATH fund.

CEFA is based on the S&P Developed ex-U.S. Catholic Values Index that uses a three-step process to match exposures with Catholic investment guidelines while reducing tracking error to broad international equity benchmarks.

The first step entails screens to eliminate companies involved in activities deemed inconsistent with Catholic values. That list ranges from abortion-related activities and biological weapons to stem cell activity and adult entertainment content production. Most of these proscribed activities have a zero-tolerance revenue exposure level, though adult entertainment content re-selling has an exposure limit of 5% of a company's revenue, and the category of conventional military sales has a revenue exposure cap of 50%.

“If you set every tolerance level to zero you can inadvertently cut out bigger portions of the benchmark,” said Jay Jacobs, head of research and strategy at Global X.

In the case of the category of adult entertainment content re-selling, he noted, the 5% buffer enables on-demand media companies to remain in the index.

The second step in the investment process aims to reduce tracking error to international equity benchmarks by re-weighting index holdings to match the sector weights of the S&P EPAC ex-Korea Large Cap index.

And last, the index constituents are rebalanced quarterly.

For CEFA, the end result is a fund whose top-10 holdings include familiar names such as Toyota Motor Corp., German software maker SAP SE, spirits and beer company Diageo Plc and French beauty care company L'Oréal S.A.

CEFA’s expense ratio of 0.35% is slightly more than the 0.29% charged by the U.S.-focused CATH fund. But valuation metrics on CEFA’s portfolio—as measured by price-to-earnings and price-to-book—are lower than those sported by CATH, reflecting the recent outperformance, and some might say overvaluation, of the U.S equity market.

The CATH fund debuted in April 2016, and so far has achieved its mandate to match the performance of the U.S. large-cap market while enabling people to invest according to their faith.

The fund has performed in line with S&P 500 Index-tracking ETFs from iShares, Vanguard and State Street. Granted, those three funds all have single-digit expense ratios, but faith-based investors appear willing to pay roughly 20 to 25 basis points more for a comparable product.

“The idea [for CATH] originally came to us from a financial advisor who managed a fair amount of money for Catholic institutions, endowments and foundations,” Jacobs explained.

He added this advisory firm screened individual securities to align them with Catholic investment guidelines, but found it to be a very labor intensive and inefficient process. So they approached Global X with the idea of putting this strategy into an ETF wrapper.

Jacobs said CATH attracts both institutional and retail investors. He noted that CATH’s track record prompted inquiries from clients who wanted the fund's approach expanded to non-domestic equity markets.

“If you look at a global portfolio of roughly 50% to 60% being U.S. and 30% to 35% being international developed, it makes sense to extend this approach to the next biggest portion of an investor’s equity portion of their portfolio,” Jacobs said.

He posited that CATH and CEFA are designed to be core portfolios because both products reweight their sector exposure to match their initial benchmark to reduce tracking error.

“You could make a comprehensive portfolio on the equity side with just these two funds,” Jacobs said.

Based on the success of CATH, that’s a message that could resonate with investors infused with Catholic values.