New ETF Aims To Track High-Character CEOs

The ROC ETF seeks to offer a new factor to retail investors.

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Reviewed by: Dan Mika
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Edited by: Dan Mika

A new ETF issuer believes that it can outperform the Russell 1000 by buying companies headed by the most respectable CEOs. 

The ROC ETF (ROCI) debuted on the Cboe Global Markets Thursday with an expense ratio of 0.49%. 

ROCI is actively managed and holds a market-cap-weighted list of 106 members of the Russell 1000 based on its internal scoring of CEOs seen as trustworthy and willing to put the company before their own interests.  

The quantitative scores are derived from a combination of analyzing a CEO’s use of language, history of controversies or lack thereof, third-party biographies and interviews with colleagues to reach a final score. 

Berkshire Hathaway, Apple, Microsoft and Costco are among the top holdings in the fund’s portfolio. 

 

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ROC Investments founder Dan Cooper said the fund is named after a 2015 study that suggested companies with employees that ranked their CEOs as high in integrity, responsibility, forgiveness and compassion produced returns of 9.35% over a two-year period versus 1.93% for companies whose chief executive got poor marks. ROC stands for “return on character.” Some of the study’s authors are helping to lead the research underlying ROCI’s selection methodology. 

Cooper believes the anecdotes that make the rounds among market participants about CEOs are a factor that incorporates industrial psychology on a company’s performance. 

“We speak with a lot of analysts on the Street, and when you ask the question, ‘Of the companies you follow, who do you think would put the company ahead of their own interest,’ they don't typically have a long list,” he explained. “When they do have somebody, they typically have some interesting evidence that makes them feel that way and think that way.” 

 

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Cooper said he co-developed the strategy in the early 2000s with longtime options trader Joe Ritchie and ran it on behalf of a high net worth family for four years. He declined to say how much the strategy returned but claimed to beat an equal-weighted Russell 1000 index over the time period. 

There are countless factors that can affect a company’s performance that are outside the control of a CEO, but Cooper argues that owning companies across the sector spectrum led by respectable leaders will provide the diversity of buying the market with better returns over the long run.  

“It doesn't mean a CEO that is subject to difficulty won't struggle,” he said. “But over the long term, we believe you're going to be right more than you're wrong if you're betting on character.” 

 

Contact Dan Mika at [email protected], and follow him on Twitter 

Dan Mika is a reporter for etf.com. He has previously covered business for the Ames Tribune and Cedar Rapids Gazette in Iowa, and BizWest Media in Fort Collins, Colorado. Dan holds a bachelor's degree in journalism from Truman State University.