An investment product built to address social-justice issues may feel more authentic than one built to meet customer demand.
What Can an Investor Do in the Face of Racial Injustice? The Answer Is Changing
Last summer, as the killing of George Floyd, rocked the country, MarketWatch asked an uncomfortable question. What can an investor do about racial justice? (link)
It felt uncomfortable because it felt impossible. Realistically, there aren't much most ordinary investors can do to correct society's ills.
Even so, an entire section of the asset management industry has emerged to convince customers that putting their money in particular funds is equivalent to “doing something” even if that fund seems suspiciously like all the others. (link)
At the time, MarketWatch profiled one exchange-traded fund that represented a small step toward “doing something.”
The Impact Shares NAACP Minority Empowerment ETF(NACP), a not-for-profit ETF, was formed out of a partnership with the NAACP, with a goal of eventually returning some fees to that organization.
Read: A first-of-its-kind racial empowerment ETF is ‘flying under the radar.' Maybe it shouldn't (link).
One year later, however, things have changed. Survey (link) after survey (link)shows investor interest in “doing well by doing good” has only increased, as has asset-manager determination to offer products that check those boxes.
But the recent launch of another ETF shows the evolution of that approach. If NACP was racial-justice investing 1.0, the Adasina Social Justice All-Cap Global ETF (JSTC) might be the racial-justice fund of the post-Floyd era: bigger, broader, a little more responsive, and a lot more social.
“That this company saw that there was room to enter the marketplace with something that was different and to have confidence they could gather enough assets to make it a worthwhile endeavor really speaks to the need,” said Todd Rosenbluth, head of ETF and mutual fund research for CFRA.
The fund (link) has gathered $53 million in assets after being open for not even six months, a feat Rosenbluth called “pretty impressive.”
“What we are focused on with our fund and with our company is providing a bridge between movements for social justice and financial markets,” said Adasina's co-founder and CEO, Rachel Robasciotti.
Robasciotti spoke with MarketWatch in August 2020 (link) about her work in the intersection of those two movements.
Spokespeople for NACP did not respond to multiple requests for comment for this article, but FactSet data show that the ETF now has $28 million in assets, up sharply from $4 million last summer, but still below the $50 million thresholds often considered a marker of a fund's viability (link).
While Adasina may be best-known for her focus on racial justice, the company actually looks at four building blocks holistically: racial, gender, economic, and climate justice.
“Those four issues are four heads of the same hydra,” Robsciotti said. “(Minneapolis police officer Derek (link)) Chauvin put the knee on George Floyd's neck but it's a system he was operating within that's responsible for the murder of so many Black men.”
Just as JSTC opens up the perception of what “justice” means, it also helps evolve the notion of aligning investor dollars with a conscience.
Some commentators called earlier iterations of ETFs virtue-signaling tools (link): in favor of marijuana, for biblical beliefs, for example.
And in 2020, an NAACP representative told MarketWatch that having a partnership with the ETF added some data, and some gravitas, to the organization's conversations with companies about their diversity and inclusion efforts.
But Robasciotti sees her ETF as something bigger: a community builder. “What makes change is a groundswell of investors acting in solidarity,” she said. “In order for us to be leaders in that movement we have to show the world how it's done.
Our ETF is an exemplar of how to divest from the carceral state (link) and invest in entities that are aligned with racial justice.”
Even so, Rosenbluth thinks ImpactShares and Adasina fill an important gap in the investing landscape simply by addressing relatively straightforward social-impact investing goals.
Investors make all kinds of decisions on how to put their money to work, he said in an interview, “but if they continue to invest in broad market products that include the largest companies simply because they are the largest companies, change won't happen, at least at the same pace.
These products are actually rewarding companies for doing things deemed appropriate by trusted parties.”
JSTC's reach is global, and its top holding is in shares of Visa Inc.(V)
In contrast, NACP is U.S.-focused and tech-heavy: its top three holdings are Apple Inc. (AAPL), Microsoft Corp.(MSFT), and Facebook Inc(FB).
That helped the fund outperform in 2020, with a 26% return, compared to the S&P 500's 18.4%, but this year it's lagging a bit: up 10.6%, versus 11.7%. This year, JSTC is up 11.1%.
On the one-year anniversary of George Floyd's murder, Robasciotti was contemplative. The attention on Floyd “was absolutely necessary,” she said. “For me personally it was a moment that I both drew a lot of inspiration from, but it was also really painful.
I've had three different family members lost to police violence and while my heart swelled with pride at seeing all the people in the street, I just had so much sadness in my heart.”
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