It’s an age-old investing question. Can you do good and do well at the same time?
Ethan Powell is on a mission to prove that you can.
The 43-year-old former hedge funder is using his non-profit finance firm, Impact Shares Corp., to create a new way of doing socially responsible investing. From his office in Frisco, Texas, he’s setting up funds that eschew popular one-size-fits-all ESG models -- which stands for environmental, social and governance -- for ones that not only are built hand-in-hand with specific charities, but also fork over the bulk of their fees to those organizations.
Impact Shares’ NAACP Minority Empowerment ETF started trading in July under the ticker NACP, and its YWCA Women’s Empowerment ETF, or WOMN, launched on Monday.
Values investing is hot, as the number of ESG funds has more than tripled over the last four years. Still, total assets are slightly less than $7 billion, a blip in the $3.7 trillion U.S. ETF market.
But assets aren’t Powell’s main gripe. ESG methodology is.
“The way they’re interpreting social responsibility is very suspect,” he said. “And even if it’s not suspect, it’s very difficult to understand.”
In particular, the catch-all nature of ESG strategies can leave some portfolios with strange positions. For example, the second-largest holding in BlackRock Inc.’s iShares MSCI KLD 400 Social ETF, known by its ticker DSI, is Facebook Inc., which is in a battle over the types of content posted on its website, from child abuse videos to hate speech.
Who Cares?
But the real question facing Powell and his competitors is whether investors actually care about doing good. More than half of those recently polled for a Charles Schwab Corp. study said performance was among the most important factors when considering a socially responsible investment. To woo buyers, fund companies have transformed ESG into a broad, money-making, church that allows investors to feel good without sacrificing returns.