‘Go woke, go broke,’ runs the catchphrase. Now, at last, we are presented with the welcome opportunity to put this proposition to the test. A new exchange-traded fund has been launched in the US whose unique selling point is that it will refuse to invest in companies which use Diversity Equity and Inclusion criteria in their employment policies. DEI delights not Azoria 500 Meritocracy ETF, no, nor ESG (environmental, social and governance) neither, though by your smiling you seem to say so.
The fund has just been launched with some fanfare at (where else?) Mar-a-Lago, and its founders say they hope to raise a billion dollars by the end of next year. They declare their intention to use their investing strategy to pressure companies listed on the Standard and Poor’s 500 index to drop their DEI and ESG policies. Its founders told USA Today that the fund ‘will allow retail investors to vote with their portfolios and play a role in pressuring the nation’s largest companies to roll back diversity, equity and inclusion policies’.
If you squint at it from the right direction, the cause could even be described as noble
They have, bless them, something of a mountain to climb if that’s really the plan. For a start, their billion dollars under management is currently imaginary. And even if they do raise that much – hard not to picture Doctor Evil from Austin Powers twisting his little finger in the corner of his mouth at the prospect – it’s not really the sort of dough that moves markets and panics S&P 500 companies into changing their way of doing business on the fly.
As of October this year, the world’s 500 largest asset managers had $128 trillion under management, which is 128,000 times what these plucky upstarts in their publicly-declared wildest dreams hope to be playing with. The image that popped into my head when I first read about this scheme was that of Kipling’s wise and funny story ‘The Butterfly That Stamped’; but I don’t think you could see Azoria Meritocracy as being anything like so consequential as a butterfly. They’re working up, perhaps, to being a mosquito.
And their plan of battle seems a little confused, too. They claim that the ‘woke’ companies in which they are refusing to invest have lagged the S&P 500 over recent years – but they have so far declined to name any of the companies they’re proposing to boycott. You’d think, wouldn’t you, that these brave activists would be only too happy to name and shame their enemies and revel in the hard figures that back up their plan for investment success.
The FT reports that the coffee chain Starbucks is on their blacklist, but since Starbucks told the FT it doesn’t have DEI quotas anyway it’s hard to see why Azoria would take against them. A finance professor at the University of Florida, Jay Ritter, speculated to USA Today about the potential customer-base: ‘Some investors will want to buy them as a political statement, just as some investors buy other ETFs as a show of support for another cause.’ He warned, though, that ‘ideologically driven’ investment funds in the past have tended to draw meagre investments even as they charge hefty fees. Well, fancy.
A counter to the go-woke-go-broke argument, that said, has always been that it misses the point. If you support the principles behind them, you can make the case that having diversity quotas isn’t just about making money: it’s about doing the right thing. In fairness to the folk at Azoria Meritocracy: they can make the same argument. Refusing on principle to invest in certain firms, they can say, is just the right thing to do – and if it means our clients’ portfolios grow sluggishly, that is a price worth paying.
Which is, of course, their absolute entitlement – and if you squint at it from the right direction could even be described as noble. But a less charitable view we’d be entitled to take is that the whole thing is not so much a statement of principle as a publicity stunt designed to capitalise on Donald Trump’s re-election: the stock-market equivalent of Trump Bibles or Trump sneakers or Trump NFTs.
No asset manager of that size seriously imagines that they’re going to change the DEI policies of huge corporations by not investing in them. Nor can they imagine it’ll be the high road to making their clients rich. If you’re serious about getting the best return on investment, you make it much harder for yourself by refusing to invest in certain stocks regardless of how well they may be doing. If there is any direct correlation between DEI/ESG policies and poor financial performance – if ‘woke’ corporations really aren’t making any money – nobody else will invest in them either.
The people it might make rich, mind you – if they can find enough turnip-headed MAGA rubes willing to pile their money into an ‘anti-woke’ investment vehicle – are the asset managers who collect percentage fees on the fund whether it outperforms the market or underperforms it. This is a class of people for whom the word ‘meritocracy’ may or may not seem suitable.