VictoryShares: Blending ESG, Military Support

[This ETF Industry Perspective is sponsored by VictoryShares.]

Victory Capital, through the VictoryShares ETF platform, recently launched the VictoryShares Top Veteran Employers ETF (VTRN). The ETF focuses on the stocks of U.S. companies that prioritize the hiring of veterans and supporting them as employees. Alex Chagoya, senior investment analyst with VictoryShares, spoke with ETF.com about VTRN and why investors should consider adding it to their portfolios.

ETF.com: Why did VictoryShares launch VTRN?
Chagoya: As a firm, we have an extremely strong commitment to serving the military community. Our aim is to support the long-term financial security of the military and their families, and we are truly honored to help them work toward their investment goals.

We believe the VictoryShares Top Veteran Employers ETF encompasses this spirit by tracking an index of companies that stand behind our veterans, as measured through their policies and corporate culture.

ETF.com: Why should we want to invest in companies that prioritize hiring and supporting veterans?
Chagoya: We believe there’s a solid case to be made for why the corporate treatment of veterans can be a powerful investment theme that may even lead to incremental returns. Given the positive impact that veterans can have in the workplace, the companies that have set the standard in championing initiatives and best practices for veterans may be poised for longer-term success.
We believe that military veterans tend to enhance a firm’s talent pool and bring leadership qualities and coveted characteristics of successful companies. And let’s face it, supporting our veterans is the right thing to do. That’s important in an era where ESG investing is gaining traction.

ETF.com: Would you tell us a bit about the underlying index's methodology? How are these companies selected for inclusion?
Chagoya: The selection criteria for these companies goes far beyond just the hiring of veterans. Inclusion in our ETF involves a process that evaluates companies with policies that are supportive of veterans, service members and their families. This includes considering the following types of aspects

• Veteran hiring and recruiting
• Veteran employee development and retention
• Veteran-inclusive policies and culture
• Guard and Reserve policies
• Military spouse and family support

For context, one quick example could be if someone in the Reserves was called to arms.  What kind of policies would the company have in place that would accommodate that leave?

ETF.com: Who should invest in this type of ETF, and what role might it play in a portfolio?
Chagoya: This ETF is part of a very limited and unique group of products that allows an investor to gain exposure to companies that champion practices for hiring, retaining and supporting our veterans.

It’s also another avenue for socially conscious investing, allowing investors to align their investments with their values. In fact, VTRN was named a finalist for ETF.com's Best New ESG ETF award for 2020. ETF.com Award winners are selected by a majority vote of the ETF.com Awards Selection Committee, a group of independent ETF experts from throughout the ETF community, from top nominees determined by the editorial staff at ETF.com.

Along these lines, I’d like to mention that this product donates a portion of fees to an initiative that we've set up to work with the military community through a financial readiness program to address the typical financial challenges faced by military families. This program provides an array of resources to help improve the financial acumen of military families.

ETF.com: Could you talk a little bit about what’s in the fund and the largest holdings?
Chagoya: As of March 31, 2021, the top 10 fund holdings were: the Boeing Company, Home Depot Inc., Waste Management, Inc., J.B. Hunt Transport Services, Xcel Energy Inc., Exelon Corporation, Lockheed Martin Corporation, General Motors Company, Oshkosh Corp. and Bank of America Corp.

All of these, with the exception of Oshkosh Corp., are large to mega-cap companies. In terms of sector exposure, more than 30% is industrials and approximately 20% is financials. In terms of style, VTRN is in the Large Blend category, with over 40% of holdings falling into the Large Value category. Incidentally, this may be ideal exposure if we are in the early stages of a cyclical economic recovery coming out of the pandemic.

ETF.com: Does VTRN have any sort of sector requirements?
Chagoya: There are no sector or regional requirements or minimums for our ETF. However, there are four eligibility requirements for inclusion. The company must: 1) be a member of the VETS Index, which is one popular way the industry confirms veteran-friendly companies; 2) be publicly traded company, with a market cap of at least $1 billion; 2) have liquidity greater than $40 million in average daily traded volume; and 4) pass the VETS Index Committee Credibility Review. The VETS Index Committee can weigh in on ensuring that the companies truly pass their set of standards that, again, are most supportive of our veteran community.

ETF.com: VTRN is classified as a total market fund. Where might this fit into a portfolio?
Chagoya: Depending on the investor’s individual circumstances and goals, some may view it to fill any number of roles in a portfolio.

On one hand, I would call this a thematic investment that might work best as a supplement to a core equity allocation. But given that it’s large-cap and value tilt, it should fall well within the risk parameters of many investors, so it could even be funded from an investor’s core equity allocation. After all, these are large, vetted U.S. companies with ample track records.

Finally, I think it’s especially intriguing from an ESG perspective. The fund is trying to invest in companies that not only provide incremental return potential, but also do right by veterans. It’s a unique ESG play that should appeal to socially conscious investors.

ETF.com: Anything else we should know about the methodology?
Chagoya: The ETF rebalances on a quarterly cycle and goes through a full reconstitution twice a year. However, I would note that turnover for this index is fairly low. A new company may be added to this universe through either of two selection paths.

Companies can receive the highest recognition level from the Department of Labor’s HIRE Vets Medallion Program (Platinum) and from the Department of Defense’s Employer Support of the Guard and Reserve (ESGR) Program (Freedom Award).

Alternatively, the companies may be approved by nongovernment recognition programs, like the Victory Media Military Friendly Employer Awards and the U.S. Veterans Magazine Best of the Best awards (Top Veteran-Friendly Companies).
Through these surveys and recognition programs, we can ensure that the companies in our ETF truly champion best practices for veterans.

Carefully consider a fund's investment objectives, risks, charges and expenses before investing. To obtain a prospectus or summary prospectus containing this and other important information, visit www.vcm.com/prospectus. Read it carefully before investing.

All investing involves risk, including the potential loss of principal. The Fund has the same risks as the underlying securities traded on the exchange throughout the day. Redemptions are limited, and commissions are often charged on each trade. ETFs may trade at a premium or discount to their net asset value. The Fund invests in securities included in, or representative of securities included in, the Index, regardless of their investment merits. The performance of the Fund may diverge from that of the Index. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Investments concentrated in an industry or group of industries may face more risks and exhibit higher volatility than investments that are more broadly diversified over industries or sectors.

Investments in aerospace and defense companies may be adversely affected by changes in governmental policies and spending as well as adverse economic conditions and industry consolidation. The value of your investment is also subject to geopolitical risks such as wars, terrorism, environmental disasters, and public health crises; the risk of technology malfunctions or disruptions; and the responses to such events by governments and/or individual companies. Fund holdings and sector allocations are subject to change, may differ from the Index, and should not be considered investment advice.
The Veterans Select Index℠, designed by VETS Indexes LLC, measures the performance of publicly traded companies that support US military veterans. Net expense ratio reflects the contractual waiver and/or reimbursement of management fees through October 31, 2021.

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