A new exchange-traded fund launched today with a dual mandate to invest in companies that are committed to LGBTQ diversity and are compliant with environmental, social and governance principles. It also has the backing of some prominent people in the LBGTQ community. Now it needs to find an audience and last longer than a prior LGBTQ-focused fund that closed within two years of its debut.
The LGBTQ + ESG100 ETF (LGBT) tracks an index from LGBTQ Loyalty Holdings, a data company that measures how companies rank regarding equality issues pertaining to the LGBTQ community and minority interest groups. The index includes 100 U.S. large-cap companies deemed to promote workplace equality regarding gender and sexual orientation. Index holdings also need to pass ESG screens regarding guns, tobacco, pornography, weapons of mass destruction and gaming. In addition, companies are screened for superior fundamentals, low price volatility and high market liquidity.
The LGBT fund has picked up the torch dropped by a pioneer ETF focused on LGBTQ workplace equality that quickly came and went. The InsightShares LGBT Employment Equality ETF (PRID) tracked an index devised by UBS and launched to much fanfare in January 2018. It closed in November 2019 due to lack of interest.
The folks behind the new LGBT fund believe they’ve built a proverbial better mousetrap that gives it an advantage over its predecessor. For starters, fund sponsor LGBTQ Loyalty Holdings’ board of directors includes high-profile members of the LBGTQ community such as ex-U.S. Congressman Barney Frank, retired tennis star Martina Navratilova, former professional tennis player and current LGBTQ Loyalty Holdings’ CEO Bobby Blair, and former major league baseball player Billy Bean.
“It’s an active board that will talk about the product in relation to the index, because they’re the owner of it,” said Bob Tull, president of ProcureAM LLC, the LGBT fund’s investment advisor. Tull, who serves as financial advisor on LGBTQ Loyalty Holdings’ board, is the former executive director of AMEX ETF and a long-time player in the ETF industry.
Tull noted the index screening process incorporates survey responses from the LBGTQ community, providing a first-hand endorsement of companies seen by the community as actually walking the walk regarding their commitment to LBGTQ equality. Specifically, the Harris Poll surveyed 150,000 self-identified members of the roughly 11.5 million-member U.S. LGBTQ community regarding their feelings of loyalty and brand awareness toward companies in the broader U.S. large-cap universe.
“It’s the difference between the theoretical and the actual,” Tull said. “Certain companies were eliminated [from index inclusion] because of feedback from the community.”
Tull offered that the PRID fund failed in part due to a lack of marketing support from UBS and, he said, because the product’s underlying index didn’t incorporate feedback from the LGBTQ community.
“Doing the surveys and keeping [the LBGTQ community] up to date builds support for the index as part of the polling process,” he said.
The LGBT fund's portfolio includes a Who’s Who of familiar names found in many other large-cap ETFs. Recent top five holdings comprised Tesla Inc., Amazon.com Inc., Apple Inc., Microsoft Corp. and Marriott International Inc.
The product’s expense ratio is 0.75%, which is in line with some other thematic, social issues-oriented ETFs. But it’s pricey for a large-cap offering filled with companies that are fixtures in cheaper index-based ETFs.
This new fund’s potential success will likely rest on two factors: loyalty among LBGTQ community members, and outperformance.
According to LGBTQ Loyalty Holdings, the fund’s index produced a 43.8% return versus a 37.7% return for the S&P 500 Index in the 18-month period ended April 2021.