the case for anti-ESG ETFs

"Woke up capitalism"?  The ESG debate is getting louder, Pt.  1

Shareholder activism making inroads into the ETF space remains a contentious issue 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, say companies should stick solely to making a profit.

“Our perspective is that U.S. energy companies should focus on drilling for fracking, on doing whatever allows them to be most successful over the long term,” Vivek Ramaswamy, executive chairman of Strive Asset Management, told Bob Pisani on CNBC’s ‘ETF Edge’. on Monday.

“Without regard to any other political, social or environmental agenda,” he added. “Leaving politics to the politicians.”

Strive has launched two ETFs to push back against “woke capitalism” in the industry. The Strive 500 ETF (STRV) tracks 500 of the largest US publicly traded companies. The US Energy ETF (DRLL) tracks the XLE energy ETF, with Exxon Mobil (XOM), Chevron (CVX) and Conoco Phillips (COP) making up the top holdings.

“We have already engaged with 10 listed energy companies,” Ramaswamy said. “And that’s what I think we need more of in the boardroom: more open debate that represents a more diverse set of perspectives than we’ve heard in the boardrooms of these companies over the last several years.”

Starting in 2018, a wave of social agendas began to pack into boardrooms, he said, and these issues were recharacterized as long-term corporate interests when in fact they are not.

“I think the honest debate will be good,” he explained. “Both for the capital markets and for the corporate boardrooms.”

For investors, the ETFs come with a number of fees. DRLL has an expense ratio of 41 basis points, while STRV comes in at the lower end of around 5 basis points.

“In both cases, we looked to other large firms like BlackRock, who we aim to compete against, to set a fee benchmark,” Ramaswamy said.

Fees for the iShares US Energy Fund (IYE), distributed by BlackRock, come with an expense ratio of 39 basis points.

“The key differentiator that Strive wanted to bring to the market was not stock selection,” explained Ramaswamy. “But bringing an actively engaged voice and vote to the table, both through proxy voting as well as through shareholder engagement.”

Ramaswamy recently sent shareholder letters to the boards of Chevron, Apple and Disney questioning their rationale for embracing ESG initiatives that don’t necessarily advance business goals. It was a move he said might be something you’d see from a historic activist foundation.

The added value of active engagement is a selling point of Strive’s products, although it is still too early to measure their long-term growth potential in the “anti-woke” ETF space.

“I will note that the iShares US Energy ETF saw significant inflows within the past month even though this product has come to market,” Todd Rosenbluth, head of research at VettaFi, said on CNBC’s ‘ETF Edge’ Monday. “Investors have choices, but IYE outperforms DRLL.”

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