Lifestyle ETFs and investment products based on belief systems

Socially responsible investing (SRI) is fine, I’m not here to pick on people who genuinely believe they can do good in this world by virtue of which stocks their mutual fund refuses to own. Whatever, it’s a harmless delusion (even if it has very little real-world impact and is probably a higher-fee scam in disguise in many cases). I counsel clients who are into this sort of thing to look into impact investing or charitable organizations as opposed to SRI products or strategies, but that’s a story for another day.

So what about politically-aware investing?

Isn’t this the same kind of thing as SRI in a different costume? From a marketing standpoint, I’d bet it’s a homerun – people like to align themselves with likeminded individuals – so why not offer them a likeminded investment vehicle? The gold funds have been onto this idea for decades.

Just for fun, launch an ETF with the ticker symbol $AYN built around an index of companies with objectivist cultures like lululemon and see how much money comes in after doing some targeted media on the concept. Do some backtesting so you can find a carefully chosen timeframe over which the strategy beats a benchmark of your choice. You get the idea, this shit sells itself.

Take, for instance, the Congressional Effect Investor Fund (CEFFX). This is a fund that appeals to those who believe government does more harm than good and so it only invests when Congress is out of session. You can always find some moron to buy anything – despite trading flat for three years while the S&P has soared to new heights, there are still $12 and a half million dollars sloshing around inside this Frankenstein. Can you imagine whose money that is? Could be, like, a dead guy whose decedents haven’t gotten around to filling out the estate paperwork in order to liquidate it.

Here’s Index Universe on a new ETF IPO that’s already raised $150 million out of the gates. It’s been launched by an investment advisory firm and recommended, presumably, to people who confuse politics with investing or care more about the former than the latter. I’ll let you read the description with no additional comment:

The well-established firm played a key role in developing and launching both the ETF and its issuer, the nonprofit firm Vident Financial. Following the challenges of 2008-2009, Ronald Blue & Co. set out on a long-form research project to see if it could develop strategies that would provide better outcomes for clients, while aligning with the firm’s overall values.

That research led to a strategy focused on the concept of human flourishing, tempered by the principle of the inherent uncertainty of day-to-day life and led to Vident Financial.

The new ETF reflects these concepts by tilting its exposure to countries and companies that have the right environment to support growth, including low debt, strong rule of law, economic freedoms and other factors. At the same time, it incorporates a risk-management and valuation strategy developed by Lattice Strategies, an ETF-focused strategy firm based in San Francisco, to ensure that the ETF provides strong risk-adjusted returns.

I have no idea how the returns will be, perhaps they will be excellent. Or perhaps they won’t. I doubt it will matter, so long as the message stays intact and the affinity group is large enough to create an active marketplace for the concept over time.

Bon chance, true believers.


Vident’s First ETF Gains $150 Million on Day 3  (Index Universe)

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