Racial Equality ETF Debuts

July 19, 2018

Today, new ETF issuer ImpactShares is rolling out its first ETF in partnership with the NAACP. Although there are ETFs focusing on firms that military veterans, gender equality and support for LGBT employees in the workplace , the Impact Shares NAACP Minority Empowerment ETF (NACP) is the first ETF to specifically support the promotion of racial equality.

The fund lists on the NYSE Arca with an expense ratio of 0.76%.

Single Social Issue ETFs

“What we’re doing is creating single social issue equity market proxies, but we’re doing it in collaboration with leading nonprofits in that specific social issue,” said ImpactShares CEO and founder Ethan Powell. He noted that the firm’s goal is to have every social issue represented by an ETF.

Powell says that the “social” component of ESG is tricky, because everyone has a different definition of the term based on their own values. By offering a full menu of funds targeting separate social issues, ImpactShares will enable investors to reflect their social priorities.

Further, ImpactShares is structured as a nonprofit, and the net advisory proceeds for each ETF will be donated to the collaborating organization. In the case of NACP, that would be the NAACP.

“This is really a tool for the nonprofits to create engagement, and the social screens and the solution will evolve along with the issue,” Powell added.

The firm has also partnered with the YWCA for a women’s empowerment ETF that’s in registration, and it has several more funds in development stages.

Methodology

NACP’s underlying index selects its components from the Morningstar US Large-Mid Cap Index using social criteria determined by the NAACP, the fund’s partner nonprofit. Companies are scored by ESG research provider Sustainalytics based on how their practices, products and services contribute to minority empowerment, with the top 200 companies selected for inclusion in the index, according to the prospectus.

The scores are determined based on criteria such as board diversity, discrimination policy, involvement in social programs focused on racial diversity and empowerment, involvement in programs addressing the digital divide around communications and the internet, freedom of association and collective bargaining policy, diversity programs, health and safety practices, community development programs and programs centered on the elimination of conflict minerals from the company’s supply chain and products, the prospectus says.

Morningstar then uses an optimized weighting process that seeks to maintain the risk and return characteristics of the parent index that serves as the selection universe while providing added exposure to the higher-scoring companies. Each company’s weighting is based on multiple criteria, including its minority empowerment composite score and market capitalization, the prospectus says, noting that individual companies are capped at 5% of the index.

The index’s components are reconstituted on an annual basis, with rebalancings occurring quarterly, according to the document.

Contact Heather Bell at h[email protected]

 

 

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