Tuesday, March 21Welcome

The case of anti-ESG ETFs

"wake up capitalism"? ESG discussions are getting louder and louder.  1

The foray of shareholder activism into the ETF space remains a controversial topic for companies. Proponents of environmental, social and governance (ESG) products say investors are pushing companies to pay more attention to broader social issues. Others, such as Strive Asset Management, have argued that companies should stick only to making a profit.

Vivek Ramaswamy, Executive Chairman of Strive Asset Management, told Bob Pisani on CNBC’s “ETF Edge” that “U.S. energy companies should focus on drilling for fracking, and for the long term. I think we should focus on what makes us the most successful.” on monday.

“Regardless of other political, social or environmental agendas,” he added. “Leave politics to politicians.”

Strive has launched two ETFs to combat “awakened capitalism” in the industry. The Strive 500 ETF (STRV) tracks the 500 largest publicly traded companies in the United States. The US Energy ETF (DRLL) trails the XLE energy ETF, with Exxon Mobil (XOM), Chevron (CVX) and ConocoPhillips (COP) among the top holdings.

“We already have contracts with 10 publicly traded energy companies,” Ramaswamy said. “And that’s what we think we need more of on boards: a more open discussion that represents more diverse perspectives than we’ve heard on boards of these companies in the last few years.”

Since 2018, a wave of social agendas has begun to cram boards and recharacterize those issues as long-term corporate interests, even though they really aren’t, he said.

“I think an honest discussion will work,” he explained. “Both in the capital markets and in corporate boardrooms.”

For investors, ETFs come with various fees. DRLL has an expense ratio of 41 basis points, while STRV has an expense ratio of about 5 basis points.

“In both cases, we looked to other big players like BlackRock who were looking to compete to set the fee benchmark,” said Ramaswamy.

The iShares US Energy Fund (IYE) fees distributed by BlackRock are accompanied by an expense ratio of 39 basis points.

“The key differentiator that Strive wanted to bring to the market wasn’t stock selection,” Ramaswamy explains. “But we bring an engaged voice and vote to the table, both through voting and shareholder participation.”

Ramaswamy recently sent shareholder letters to the boards of Chevron, Apple and Disney questioning the reasons for adopting ESG initiatives that do not necessarily advance business goals. This may be a move historically seen in activist funds, he said.

The added value of active engagement is a selling point for Strive’s product, but it’s too early to assess long-term growth potential in the “anti-wake” ETF space.

VettaFi head of research Todd Rosenbluth said on CNBC’s “ETF Edge” on Monday that “the iShares US Energy ETF has seen significant funding within the past month, even though the product hit the market. Note that we’ve seen inflows. “Investors have a choice, but IYE outperforms DRLL.

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