Can you make an exchange-traded fund out of activist investing?
Earlier this month, Engine No. 1 came out of nowhere and won three board seats at Exxon Mobil after a six-month proxy fight. The company wants Exxon needed to significantly reduce emissions and move toward a cleaner energy strategy.
Now, they are starting an ETF to promote their methods. Engine No. 1 Transform 500 ETF (VOTE) begins trading Wednesday.
The company says it is seeking “to encourage transformational change at the public companies” and that it will try to “measure the investment made by companies in their employees, communities, customers and the environment with financial, operational, and environmental, social and governance (“ESG”) metrics.”
It is attracting outsized attention because it is the intersection between three hot investing themes: ETFs, ESG (environmental, social and governance), and activist investing.
Activist fund behind Exxon board battle launches ETF
It is unlike most ETF funds, which usually seek to buy or exclude companies that meet their investment criteria. A clean energy ETF, for example, might seek to own companies in wind, geothermal and solar, and generally exclude fossil fuel companies that have not made significant commitments to cleaner energy investments.
VOTE is not like that. The fund will track the Morningstar U.S. Large Cap Select Index, a large-cap fund similar to the S&P 500 that is market-capitalization weighted.
Here’s wha t’s different: VOTE is not trying to own companies that share its beliefs or exclude companies that do not. The shares that the company owns through the ETF will be used to vote in favor of climate change and other ESG proposals.
“They are playing the long game, so by owning Apple and Microsoft and other companies, they can use that to influence ESG standards,” Todd Rosenbluth, director of ETF and mutual fund research at CFRA, told me.
