Anti-ESG funds launch to capitalize on backlash

Fledgling ETF provider Strive Asset Management hopes to compete with ETF giants for proxy voting power


Jeff Benjamin

Strive Asset Management is entering the ETF space with the goal of taking on industry giants BlackRock, Vanguard and State Street, which combine to represent more than $20trn worth of ETF assets.

The three-month-old Columbus, Ohio-based startup, which launched its first ETF this week, is betting on a growing investor backlash of the ESG-focused proxy voting patterns among the largest players in the ETF space.

The Strive US Energy ETF (DRLL) is a straightforward, passive energy sector fund that investors can already find elsewhere. But the difference, according to Strive’s head of product and investing Matt Cole, is how the fund will vote on shareholder proposals.

“We will unlock shareholder value through shareholder advocacy, voice and votes,” he said. “We see what’s happening in the industry through ESG-friendly asset managers.”

Cole cited a 2021 Chevron shareholder vote as an example of the way the largest ETF providers can influence corporate actions. The shareholder resolution required Chevron to monitor and reduce the carbon footprint of every company in its supply chain.

Though Chevron’s board of directors described the proposal as overly burdensome and didn’t support the proposal, it passed after all the major ETF providers managing funds that include shares of Chevron stock voted in favor.

“We say, US energy companies should evaluate all future and current investments as well as alternative energy projects exclusively based on a financially measurable return on investment, regardless of any other social, political, cultural or environmental goals,” Cole said. “They might be noble and important conversations, but the right place is through the political process, where everybody has one vote.”

Nate Geraci, president of The ETF Store, said the reaction among investors is real and growing, and that Strive is not the first ETF provider to jump on the “anti-ESG” bandwagon.

“There seems to be growing backlash to ESG investing, which has been crammed down investors’ throats by fund companies and the media,” he said. “Strive’s ETF entrance adds to the list of new issuers seeking to capitalize on that ESG backlash.  What’s unique about Strive’s approach compared to recently launched anti-ESG ETFs is that they’re seeking to drive change in corporate boardrooms through proxy voting, as opposed to simply owning anti-ESG stocks.”

Anti-ESG funds

One example of the anti-ESG theme is the BAD ETF (BAD) that was launched in December with a focus on the types of companies that rarely make the ESG cut.

So far, the fund has grown to just $7.8m and is down 16% this year, which compares to a 13% drop by the S&P 500 Index over the same period.

Another example in the anti-ESG world is the God Bless America ETF (YALL), which was filed with the Securities and Exchange Commission last month but has not yet been launched.

The investment strategy of YALL is to invest in companies that create American jobs and screen out companies that stress political activism.

Eric Balchunas, ETF analyst at Bloomberg Intelligence, puts Strive generally in the same camp as the so-called anti-woke funds, but said going after shareholder voting power is “super ambitious.”

“If you’re going to put out beta exposures, you’re now in direct competition with BlackRock and Vanguard,” he said. “This will be an interesting experiment. We’re going to see, if all else is equal, will investors go with cheap beta without the ESG voting block that BlackRock and Vanguard can put out there.”

Based on the initial trading volume of DRLL, Balchunas said the fund could reach $50m in its first week, “which is way high for an independent ETF.”

“Most ETFs that are launched by independents are lucky to have $50m after the first six months,” he added.

While Strive might be climbing the steep side of the mountain by trying to build enough proxy voting momentum to go up against the ETF industry giants, the strategy has struck a nerve on the ESG side of the fence.

A day before the new ETF started trading, The Sunrise Project sent out a press release denouncing the fund and its backers as “climate denialism.”

“In May, biotech multi-millionaire Vivek Ramaswamy founded an asset management firm, Strive, with the declared goal of competing against industry leaders BlackRock, Vanguard and State Street,” the release reads. “Today, at EnerCom in Denver, Ramaswamy is set to announce pro-fossil fuel shareholder proposals.”

Danielle Fugere, president of As You Sow, also took issue with the new ETF provider.

“Our concern is less about the fund and more about the theatrics surrounding it,” she said. “’Woke capitalism’ is an absurdity on its face. ESG is a framework accounting for risk, calling it ‘woke capitalism’ is egregious.”

Cole said Strive plans to launch a new ETF every month for the rest of the year, and funds in the filing pipeline offer exposure to the S&P 500, semiconductor sector, technology and emerging markets.

“We will put forward our own shareholder proposals,” he said.

Those proposals, according to Fugere, will go against the grain of where the market is heading.

“You’re getting proxy voting that supports the status quo, which bodes poorly for the economy over time,” she said. “I don’t think that will sell well to more than a minority of investors, and I would say those investors are more politically oriented than investment oriented.”

This story first appeared on InvestmentNews.

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