Issuers of exchange traded funds are an inventive lot and in recent years, that ingenuity evolved to include funds focusing on specific demographics.
Some established funds focus on investing concepts and themes relevant to millennials and it's probably just a matter of time before a product or two addresses Gen Z. While these ETFs focus on ideas relevant to a specific segment, success is derived from broader appeal. The newly minted LGBTQ + ESG100 ETF (NASDAQ:LGBT) taps into that idea.
LGBT, which debuted last month, is the first ETF brought to market by LGBTQ Loyalty Holdings, Inc. The new fund tracks the LGBTQ100 ESG Index, the “first-ever index to incorporate LGBTQ community survey data into the methodology, generating a benchmark of the nation's highest-performing companies that are most committed to advancing equality,” according to the issuer.
Obviously, any new ETF – regardless of underlying investment concept – faces challenges in what is an increasingly hyper-competitive market. However, good timing can often be a rookie ETF's best friend and LGBT has that on its side. As advisors well know, more clients are demanding sustainable investment solutions and many are clamoring for more than a strategy that merely addresses environmental stewardship. That could open the door to success for LGBT.
LGBT Methodology Is Practical, Relevant
Methodology always matters, particularly when venturing away from pure beta ETFs. Fortunately, LGBT's foundation is straight forward and easily conveyed to clients.
“The annual Index represents the top 100 hundred LGBTQ equality-driven U.S. companies from a universe of 500 publicly traded large-cap corporations,” according to the issuer. “The companies are also screened to insure they meet our methodology ESG compliance, by a world leading provider of corporate governance and responsible investment.”
Like many legacy ESG products, LGBT excludes gun makers, tobacco companies, purveyors of adult entertainment, producers of weapons of mass destruction and companies that derive two-thirds or more of sales from gambling.
And like many traditional funds in this category, LGBT doesn't have energy exposure (nor real estate). It's also overweight technology stocks relative to the S&P 500. Overall, LGBT delivers a lineup many clients – LGBTQ and otherwise – would be comfortable and familiar with. Additionally, it's one that's applicable to a wide variety of clients, particularly those seeking growth exposure. LGBT's top holdings include Tesla (NASDAQ:TSLA), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT).
LGBT could potentially allay a frequently mentioned concern regarding sustainable strategies: Performance. Clients often wonder if their desire for virtuous investments means leaving returns on the table. The past performance of LGBT's index indicates it's possible to capture additional upside with this strategy.
“For the 18-month period from November 2019 to April 2021, the Index generated a 43.84% return versus a 37.65% return for the S&P 500, while keeping volatility lower by 66 basis points of the benchmark,” according to the issuer.
LGBT Durable, Right for the Times
LGBT could prove durable, particularly when growth stocks come back into fashion. In fact, the ETF debuting at a time when value is in style could work in its favor as investors look for new avenues to bet on a growth comeback.
For advisors, LGBT is in fact relevant from a demographic point of view because data indicate more clients may hail from the LGBTQ community and more may be looking for investments that align with their values.
As of last year, 5.6% of adults identify as LGBTQ and that percentage jumps to 15.9% for those born between 1997 and 2002, according to Morningstar. Other data points confirm members of the LGBTQ community want more investing guidance and are yearning to build wealth and nest eggs. Those could be signs LGBT is a well-timed ETF and one advisors can discuss with clients.
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