Fortune 500 corporate boardrooms increasingly have embraced a “woke” agenda — such as Gillette lecturing its shavers about toxic masculinity and Bank of America having guest speakers declare capitalism evil.
In response, some Wall Street players now are offering exchange traded funds (ETFs) that exclude left-wing companies, taking a page from the activist playbook that created investment programs to boycott enterprises deemed environmentally unfriendly.
A pair of investment programs that launched in the last year — the American Conservative Values ETF and the 2ndVote Advisers ETF — are led by directors who seek companies that have not launched ad campaigns or issued bulletins that they think prioritize liberal politics more than profits.
In the process, the ETFs seek to influence not only the behavior of investors but also of company directors.
“I sometimes say this real slow when talking to professional economists, but we believe the companies that focus on their profits will be better investments than those that focus on social justice,” said Andy Puzder, a director of 2ndVote Advisers.
On Friday, the American Conservative Values ETF said it had dumped shares in several companies that have recently embraced critical race theory in seminars and training, according to investigative reports by Christopher Rufo, a senior fellow at the Manhattan Institute.
“Recent actions by Bank of America Corp., Lowe’s Co. Inc., American Express Co. and Nasdaq Inc. have caused considerable concern and outrage among politically conservative investors,” the American Conservative Values said in a statement, adding that it would encourage investors to boycott those companies.
William Flaig, CEO of the American Conservative Values ETF, said reports of left-wing-mandated training at those companies required the fund to dump shares during one of its rebalancing periods.
“In light of news that these companies have instituted employee training based on critical race theory, which teaches that America is an inherently racist and evil country, we cannot in good faith continue investments into these with our investors’ money,” Mr. Flaig said.
Similarly focused investment vehicles have existed for some time, such as Ave Maria Mutual Funds, which seeks to direct investor money to companies that hold true to Roman Catholic values.
The new stock portfolios seek to combat not only what company directors may say or do but also what increasingly powerful asset managers may direct a company to do.
So far, the 2ndVote Advisers’ Life Fund and its ESG Neutral Fund are beating the S&P 500 year-to-date average, with the latter returning 27.1% in 2021, according to the fund. (ESG is shorthand invented by leftist investors for judging a company’s “environmental, social and corporate governance.”)
The American Conservative Values ETF, meanwhile, is “seeking to boycott ownership of companies that are most hostile to conservative values,” Mr. Flaig said.
Since its inception in November, the American Conservative Values ETF has seen returns of 38.57%, according to its prospectus.
At the moment, the heaviest weighted stocks in 2ndVote Advisers’ ESG Neutral Fund are Fortune 500 companies like agribusiness Mosaic Co., Brighthouse Financial annuities and travel tech firm Sabre.
Some Silicon Valley stocks also may be included, as their returns have been too soaring for investors to ignore, even if the conservative managers bristle at censorship by Twitter or Facebook.
“FAANG [Facebook, Apple, Amazon, Netflix and Google] can’t be ignored,” Mr. Flaig said.
There is no purity in the process of weeding out left-wing firms, the directors of the funds told The Washington Times, noting that companies are not all liberal or all conservative and fund managers have to maintain some flexibility.
“Recall that many of our holdings are liberal companies, there is only so much advocacy we can do and still confidently deliver predictable large-cap returns,” Mr. Flaig said.
Recent corporate activity seems to shrink the available pool of conservative investments. Stories of Verizon, Raytheon and others mandating critical race theory seminars for executives and staff reflect a commitment to a leftist outlook, the directors said.
“Coke, Delta, Disney, Nike, Blackrock,” said Mr. Flaig, rattling off a list of flagship American brands that have established left-wing policies in recent months. “You can see there a suppression of First Amendment rights and a hostility to conservative values.”
Dan Grant, CEO of 2ndVote Advisers, said it takes a kind of aggressive posturing against conservative ideas to land a company on the fund’s “no-buy” list.
2ndVote Advisers derives its name from the idea of what people do with their money represents their second choice after the one they make in voting, as well as expresses support for the Second Amendment.
The ETF weighs six factors to rank companies from 1 (most liberal) to 5 (most conservative). Not one company among the thousands tested has scored a 5 across the board, and the highest overall scores were a handful of 4s.
Nearly three-quarters of the companies in the S&P 1500 — 73% — graded out with a score of 1 or 2 and 27% earned a 3, according to Mr. Grant.
Ratings are subject to change, as the American Conservative Values ETF’s Friday announcement showed.
“We try to stay on top of the news cycle,” Mr. Flaig said.
However, he noted that the news cycle could be misleading. Statements from company executives do not automatically earn a disinvestment because often such statements amount to something of a PR stunt and a closer look at the company’s balance sheet and bottom line might reflect less political posturing, Mr. Flaig said.
Last week, U.S. authorities announced an investigation into Deutsche Bank’s asset management arm, which regulators in the Biden administration believe used ESG statements as publicity more than investment guidelines.
Even Tariq Fancy, who invented the ESG concept while running “sustainable investing” at the BlackRock investment management company, has acknowledged that actually running a company along “green” lines as opposed to just talking about doing so are two completely different things.
“In truth, sustainable investing boils down to little more than marketing hype, PR spin and disingenuous promises from the investment community,” Mr. Fancy wrote in a USA Today op-ed in March.
All that language has proved profitable for asset managers, however, as millions have poured into ESG funds, which doubled in 2020.
The divide between what a company says and what it does may strike ESG supporters and regulators examining Deutsche Bank as a drawback, but for the conservative funds managers it is a plus. Even Mr. Fancy noted that “to advance real change in the environment simply doesn’t yield the same return.”
Managers at 2ndVote Advisers and American Conservative Values say that investors like BlackRock have been able to boost liberal politics more than profits in some companies via the huge positions they have acquired in those firms.
BlackRock CEO Larry Fink isn’t shy about this. In a recent letter to investors, he noted BlackRock’s commitment to having companies it backs “carbon neutral” by 2050, a goal he acknowledged would require a “transformation” of the U.S. economy as it is wrenched away from cheap, reliable energy sources.
“Transform the U.S. economy?” American Conservative Values’ Mr. Puzder said. “Larry Fink has a radical environmental agenda, but who the hell elected Larry Fink to transform the U.S. economy?”
Investors voting large blocs of shares have reshaped corporate boardrooms, but what the new conservative-based funds seek to do is reimpose balance, according to Mr. Grant.
“If you treat everybody fairly, you’ll score just fine,” he said of 2ndVote’s investing metrics. “The question we ask is, Is a company actively trying to restrict what the right is doing? What we don’t want is investment in companies that declare, ‘We’re not being neutral; we are opposed to half the country.’”
“If you’re fair, if you’re not prohibiting free speech, or only matching employee donations to liberally approved charities or retaliating against employees who exercise their rights, then there’s no problem,” Mr. Grant said. “If you treat everybody fairly, you’ll score just fine.”