ESG investing is a squishy concept, but an exchange-traded fund that debuted today aims to bring a quantitative approach to this fast-growing investment category.
The Humankind US Stock ETF (HKND) is the first ETF from Humankind Investments, a two-year-old firm founded by former Vanguard analyst James Katz with the goal to apply a more quantitative approach to environmental, social and governance investing.
The HKND fund tracks the Humankind US Equity Index that provides exposure to roughly 1,000 U.S.-listed public companies that Humankind Investments believes have the most positive impact on humanity. The index scoring methodology incorporates public disclosures from individual companies and taps into data sources from various third-party research houses, scientific and academic papers, government agencies and NGOs.
Companies are ranked based on a quantitative analysis of their positive and negative contributions to society as measured by their impact on investors, consumers, employees and society. In total, this is described as a company’s “humankind” value. The long list of factors considered when determining these scores range from greenhouse gas emissions and slave labor to plastic pollution and predatory lending.
Next, the index methodology applies a proprietary algorithm that adjusts each company’s humankind value on the basis of its supply chain relationships, which is gleaned from company-to-company links disclosed in company filings, as well as by analyzing industry classification frameworks that determine the supply chain links between industries.
The end result produces a score that is meant to represent a company’s true social and economic value to humanity. Companies within the index are weighted by their humankind value score.
The HKND fund’s list of top holdings reads like a Who’s Who found in any garden-variety large-cap fund, with a roster that includes Alphabet Inc., Verizon Communications Inc., Microsoft Corp., Apple Inc., Johnson & Johnson and Pfizer Inc.
For ESG-inclined investors, the value-add for this product is its stated objective to quantitatively vet its holdings for their ESG bonafides. And the fund is competitively priced with an expense ratio of 0.11%
Perhaps the reasonable price point isn’t surprising given the pedigree of Humankind Investments CEO James Katz, who according to his LinkedIn site worked as a quantitative equity analyst and data scientist at low-cost fund provider Vanguard for two years before he started Humankind in January 2019.
The Humankind US Stock ETF is the first of what’s promised to be a series of socially responsible ETFs from Humankind Investments. The ESG market is growing among both institutional and retail investors, and the HKND fund’s marketing machine cites FactSet data showing that investors last year put a record $27.4 billion into U.S.-listed ESG-focused ETFs.