The NAACP Launched a Socially-Driven ETF to Foster Impact Investing and Corporate Diversity
Among the issues to be addressed at the 2019 NAACP annual convention, being held July 20-24 in Detroit, is what corporate America is doing to create real opportunities for minority firms. That question will be raised when leaders of the nation’s oldest and largest civil rights organization host a “CEO Panel,” in which they will ask corporate leaders how they approach diversity and inclusion within their specific corporate environments.
“We won’t move the needle on these issues without the commitment of corporate CEOs,” Marvin Owens, senior director of the NAACP Economic Department, tells BLACK ENTERPRISE. “As the markets continue to punish bad corporate behavior and reward good corporate behavior, CEOs have the necessary incentive from shareholders and investors to make a real impact. Diversity and inclusion become not only the right thing to do but also good business.”
The panel is also expected to encourage new investors to buy into the NAACP Minority Empowerment ETF (NYSE: NACP). The fund celebrates its one-year anniversary this month after the NAACP partnered with ETF issuer and investment manager Impact Shares to launch it in July 2018. The fund is the first of its type allowing investors to allocate money to companies that fit the NAACP’s vision of good corporate citizens. The fund invests in companies that are financially strong and promote racial and ethnic equity in all aspects of their business. It’s worth noting the NAACP is not actually traded on the stock exchange but has linked its iconic brand with a publicly-traded financial tool for corporate engagement.
BLACK ENTERPRISE caught up with Owens via email to get an update on the NACP fund.
BE: What is the fund’s overall objective for individual and corporate investors whether they are members of the NAACP or not?
Owens: A central objective of the fund is to provide a tool to align investment capital with the causes we care so deeply about. For more than two decades, the NAACP has used the corporate scorecard as a tool for measurement and accountability around the issues like blacks in corporate leadership, supplier diversity commitments, and pay equity. NACP is an innovation on this model in that it utilizes a similar strategy, but applies it to publicly traded companies on the Russell 1000. This tool provides investors who care deeply about issues of minority economic empowerment with a unique opportunity to align their capital with this commitment. It also offers market-driven incentives for companies to “up their game” related to diversity and inclusion.
Why did the NAACP create the ETF (exchange-traded fund)?
Innovation. Addressing the staggering racial wealth gap and persistent economic inequality in this country are central to the mission for the NAACP. One hundred and ten years of advocacy and activism has taught us that we have to match our vigilance with creativity. This ETF is an innovation on the work we’ve been doing all along to break down the systemic barriers blocking economic opportunity for black people in this country. We learned through the South Africa divestment campaigns of the 1980s that capital markets can be a potent force to drive social change. This ETF builds upon our history of advocacy and creates a new platform for corporate engagement.
What have been some of the fund’s top accomplishments since it started?
One of the fund’s top accomplishments has been the creation of new opportunities for engagement. As part of our launch last year, we convened a closed-door symposium for chief diversity officers, chief investment officers, supplier diversity leads, as well as institutional investors to discuss challenges and best practices in making a real impact against the business goal of diversity and inclusion. While the discussion included companies with a history of partnering with the NAACP, the fund incentivized the participation of companies with no previous interaction with the NAACP. The fund has helped to reposition the NAACP as not only an advocate but a conveyor of critical accountability conversations related to minority economic empowerment.
What has been the fund’s performance since it was initially launched?
For the one year ending July 12, NACP has returned 10.21%, which compares to 7.76% for the average Large Blend Mutual Fund and ETF in the United States. Large Blend represents the peer group as assigned by Morningstar. This ranks the fund in the 25% percentile. The fund has achieved a “High,” or “5 Globe” Morningstar Sustainability Rating, and is ranked in the 4th percentile globally. This rating is designed to identify companies that score highly on minority empowerment, as well as across a broad range of environmental, social, and governance issues.
Can you provide examples of the strategies being implemented to get more investments in the fund?
We are actively working with public pension funds, family offices such as the Sarowitz Family L.L.C., and financial intermediaries. Additionally, we are pursuing a partnership with a large financial services firm that we hope to announce in the coming months.
How has the number of major U.S. companies in the fund increased over the last year? (For instance, we hear companies in the fund as of September 2018 included Amazon, Microsoft, JPMorgan Chase, Alphabet GOOG, and Johnson & Johnson. By late 2018, Apple, Exxon Mobil, Home Depot, and TJX Cos. Inc. were among the largest companies added to the fund. Is this information correct?
The position sizes in the fund is a function of minimizing tracking error to the broad equity market. However, you are correct that a number of companies entered and exited the fund at the beginning of the year. That was largely a result of improvements in business practices relative to our goals/screens.
(Owens noted around 15 companies have dropped from the fund, including Adient Inc., Danaher Corp., Huntsman Corp., Marathon Oil Corp., and Sprint Nextel Corp among them. Simultaneously nearly 20 companies have been added, including Goodyear Tire & Rubber Co., Roper Technologies Inc., Kroger Co., Motorola Solutions Inc., PG&E Corp., and Yum! Brands Inc.)
How is the fund helping the NAACP boost its revenues? In what way is the NAACP using that money to convince blue-chip companies to do things like boost racial diversity on their boards or increase the number of black-owned minority suppliers they use?
The fund is still young, but the unique model of Impact Shares, our nonprofit fund manager, allows for the NAACP to receive fee income after expenses. By diversifying our funding, the NAACP will be able to build out new programs and efforts creating pathways for blacks to corporate boards; to actively engage in the persistent problem of the lack of access and opportunities for black asset managers; to use the power of the market to push for greater supplier diversity opportunities while simultaneously reducing our dependence on traditional philanthropic sources to fund our mission.
Recent reports have indicated affluent millennials will be armed with trillions of dollars over the next several years to sink money into investments reflecting their values and social beliefs. How is your fund positioned to attract this potentially lucrative demographic group as investors?
Depending on the research you read, upwards of 90% of millennials would like social considerations included in their portfolio. We are the only publicly available strategy whose sole social mission is to empower people of color. We believe this will resonant with all investors that believe in racial equity.
Why should other black nonprofit groups consider launching their own ETFs to help them better accomplish their missions of empowering the black community?
The model of dependence on philanthropic sources to fund our missions simply has to change. If we truly believe in long-term sustainability, then harnessing the power of the capital market has to be not only considered, but accomplished. Socially-driven ETFs provide a unique vehicle for corporate engagement, but a more equitable society continues to be the goal.