An ETF with a fitting ticker aims to give exposure to several vice industries commonly excluded from ESG funds.
The B.A.D. ETF (BAD) debuted on the NYSE Arca on Wednesday with a 0.75% expense ratio. It is the first launch from the BAD Investment Company, a Kansas City-based firm.
BAD, which stands for betting, alcohol and drugs, follows a custom index weighted equally in three parts between alcohol and marijuana producers, gambling companies and the pharmaceutical industry. Companies across geographies are eligible for inclusion in the index, but must have a $1 billion market cap for alcohol, marijuana and gambling firms, and $10 billion for drugmakers.
BAD’s primary industries are often excluded within ESG-focused ETFs and indexes for contributions to social ills, or significant litigation risks for the pharmaceutical industry. For example, ARK Invest’s newest fund, the ARK Transparency ETF (CTRU), specifically forbids alcohol, tobacco and gambling from its holdings.
BAD President Thomas Mancuso said he developed the fund as a response to what he calls stigmatization of entire industries by ETF providers issuing ESG funds, despite a lack of consensus over what is or is not acceptable in an ESG product.
“I think we should eliminate social stigmas when it comes to investing,” he said. “If we're all about getting investment return, [should we] eliminate a company that maybe has a sustainable business model, and may be relatively defensive? We should obviously have the proper regulations put in place, but not neglect them by any means.”
Despite the name and branding, Mancuso said BAD isn’t meant to be an entirely vice-driven ETF, but rather “bad-ish.” The exposure to pharmaceutical companies is meant to fit the acronym and add a growth element to the fund’s strategy.
This launch is not the first ETF to go against the social and governance grain. The AdvisorShares Vice ETF (VICE) has traded since December 2017 with little fanfare, holding just shy of $11.6 million in assets under management for an actively managed take on sin stocks. The fund has produced just a 1.46% gain year-to-date.