which launched a Workplace Equality Portfolio ETF under the symbol of EQLT.
This new fund takes arguably a new step in the socially responsible ETF sphere, focusing on companies that have ‘progressive workplace policies that treat lesbian, gay, bisexual and transgender (LGBT) individuals equally and respectfully among all employees.’ This makes EQLT the first ETF to focus on such a metric, opening up a new level in the broader socially responsible ETF space (see A Primer on ETF Investing).
How the fund works
EQLT seeks to track the Workplace Equality Index which zeroes on in companies that have scored 100% on the Human Rights Campaign Corporate Equality Index, or those that have verifiable characteristics that would earn them a 100% score.
A firm can earn a 100% score—or have the verifiable characteristics—if it meets the following criteria; it has a section in its equal employment opportunity (EEO) statement that prohibits discrimination based on sexual orientation and gender identity, offers health benefits to same-sex partners/spouses, along with other corporate benefits and privileges.
This produces an index that has about 164 companies in its basket, while it has a slight tilt towards smaller companies, at least when compared to the S&P 500 index. The Workplace Equality Index also uses an equal-weight approach, so no single security takes up an outsized portion of the basket.
However, there is definitely some sector concentration to be aware of for this fund. Consumer discretionary and financials take up the two biggest chunks, each accounting for at least 22.9% of assets, while technology (15.7%), and industrials (10%) round out the top four segments.
“The Workplace Equality Portfolio is a timely new offering that allows all investors to access companies that embrace equality principles as a foundation in their human talent strategy,” said John Roberts, a partner at Denver Investments. “We see growing demand from investors to include the stocks of these forward-looking corporations in their investment strategies. Based on the firm’s experience managing LGBT-screened portfolios over the past 15 years, we know this approach is desired by many of our client and advisor relationships.”
This ETF follows in the line of social responsible funds that are currently on the market. These products take into account environmental, social, and governance characteristics in order to pick which stocks are included in the benchmark (see Alternative ETF Weighting Methodologies 101).
Generally speaking, these funds including companies that are engaged in businesses like tobacco, alcohol, firearms among others. Some have seen a reasonable level of success in terms of accumulating assets, with the leader, the iShares MSCI KLD 400 Social ETF (NYSEARCA:DSI) has over $300 million in assets under management, while another iShares socially-focused ETF, (NYSEARCA:KLD), has close to $250 million under management.
The EQLT launch also reminds me of a series of FaithShares ETFs which looked to cater to specific personal viewpoints and mixing them with investing strategies. Many of these ended up being socially responsible ETFs, eliminating certain product types and businesses from their portfolios. However, these proved to be quite unpopular with investors and undoubtedly EQLT is looking to avoid a similar fate.
It is hard to say how the new workplace equality portfolio will fare in terms of gathering assets. Investors have a spotty track record of embracing such niche products and competition in the broad socially conscious space is pretty fierce already.
The real test will be if ALPS can rally investors around the cause, and spur some investors among those who are looking for a way to buy a basket of companies that have favorable policies towards the LGBT community in the workplace. If that is the case, or if the focus on these types of companies results in a degree of outperformance, this strategy could attract some assets, though it certainly looks to have an uphill battle in the near term.
This article is brought to you courtesy of Eric Dutram.