Is it Profitable to be a Contrarian?
--
The other day I saw a headline on Twitter that mentioned that a new ETF was coming up. I almost scrolled past the tweet because I thought it was a joke, but I figured I’d take a few minutes and see if it was real, and it somehow was.
It would be called the “God Bless America” ETF, with the ticker [YALL]. This ETF aims to prioritize the concept of “America First”, with the intention of selecting companies that are based in the United States and keep their operations in the US.
YALL is not the first conservative-themed ETF to exist out there- its cousin is the Point Bridge GOP Stock Tracker ETF (MAGA). The idea behind MAGA (the ETF, not the other one) is to allow investors to invest in companies that stand with their Republican ideologies.
YALL has more of a twist to it though-while it selects companies that want to keep their jobs in America, it will remove/not add companies that prioritize ESG initiatives and/or ones that are considered to be “activists”. The reasoning behind it, to them, is that these activism-driven initiatives are ones that are against maximizing shareholder returns.
Which begs a couple of questions- first of all, what exactly is corporate “activism”? Second of all, do ESG initiatives really take away from corporate profits?
What exactly is corporate “activism”?
Considering when the story came out, we can consider current political events, such as the Supreme Court overturning the precedent created by Roe v. Wade. Companies that were “activists” did one of two things.
The first was the easy route-many of them simply just released a statement on their social media channels. Now to the YALL ETF, that’s a red flag and a company that did so wouldn’t be one that is investable. But is that really activism? It doesn’t change anything that happened, and these companies are not changing their business practices. They’re releasing a statement that will get a ton of likes on Twitter, and going about their day.
The second is that these companies took some minor action- they committed to assist their employees in obtaining access to abortions if they live in states that banned it. For example, Google is helping employees relocate to states that have access to abortion rights. YALL wouldn’t add Alphabet (Google’s parent company) to its ETF then, since it’s taking an activist approach. But is this really taking away from Alphabet’s shareholders?
Google isn’t changing its business practices by helping its employees. It’s definitely not going to change the kind of candidates it donates to. Considering the company had over a quarter trillion dollars in revenue last year, it's not taking money away from its shareholders by putting a few thousand dollars into relocation assistance for employees.
Another thing to consider is that nobody’s going to stop using Google because they’re helping their employees out. If someone says that to you, they’re lying. Ask them what search engine they looked up to get that information in the first place. So we know that this is just political posturing by those behind the ETF.
Is the Anti-ESG move even profitable?
Regardless of the opinions of those behind the ETF, its main objective is to make money. Its whole brand is bringing value to the shareholders.
Which is why their bitterness against ESG initiatives is counterintuitive. They neglect the fact that ESG initiatives aren’t just for PR- investing in companies that practice ESG principles actually are good investments, for a number of reasons.
The first is that sustainable investments do offer returns. With the costs of sustainable alternatives to traditional supply chains going down, companies that make these investments will create more long-term wealth for themselves and their shareholders, without it being at the expense of our climate. The market is seeing this as well, as not only are returns increasing but so is the amount of investment — the amount of investment managers having ESG-aligned funds has tripled in the last 6 years. Money held in ESG-focused exchange trade funds and sustainable mutual funds is at over $2.7 trillion. Investors wouldn’t be throwing money into ESG-aligned companies if there wasn’t a monetary reason to do so.
The second is that we actually stand to lose money by not making these investments. Not taking any action will result in a GDP reduction of 18% on average by 2050, or a deep economic depression. Now I’m no YALL ETF investment manger, but I’d think that this kind of reduction would result in less money coming to shareholders’ way.
Investing can be scary. One feels helpless watching their portfolio tank because of factors they don’t even control. But situations like this one allow us to have some control, because we know the facts behind it. And the facts say it’s just not worth it to lose your money to prove a point.
