By Suzanne McGee
(Reuters) -A fledgling asset manager plans to unveil an exchange-traded fund which avoids companies that commit to quantitative diversity, equity and inclusion (DEI) measures, with the rollout planned at U.S. President-elect Donald Trump’s Mar-a-Lago residence on Thursday.
The fund, named the Azoria Meritocracy ETF, will invest in companies in the Standard & Poor’s 500 index with the exception of a few dozen that its managers conclude employ quantitative commitments to diversity when recruiting employees, its CEO James Fishback said in an interview.
Fishback, who previously worked for David Einhorn’s Greenlight Capital as a trader until an acrimonious split in the summer of 2023, aims to raise $1 billion by the end of 2025.
“A few dozen companies … embraced anti-meritocratic hiring practices,” said Fishback, saying those were being excluded.
The event is being held at Mar-a-Lago, the Florida mansion and private club that Trump calls home.
Fishback said he chose that location because he has been a supporter of Trump, whose Republican party backers include many outspoken critics of environmental, social and governance (ESG)-based investing, whose criteria can include selecting companies that emphasize demographic diversity when hiring.
In remarks prepared for delivery at the event, Fishback said that returns from the companies Azoria’s ETF will exclude have lagged the S&P 500 over recent years, but did not divulge the names of the companies.
The Financial Times reported on Thursday that one of Azoria’s targets is Starbucks (NASDAQ:SBUX). The retail coffee chain couldn’t immediately be reached for comment, but the Financial Times reported that Starbucks said that it currently has no diversity recruiting targets or quotas.
Two industry analysts who declined to be named were skeptical on whether it is possible to demonstrate a correlation between any underperformance and a company’s recruiting policies. Others questioned whether the ETF would gain traction and said ESG-focused funds may not be out of favor.
“Investors may turn further to ESG ETFs because they believe the government will not fully support their personal objectives,” said Todd Rosenbluth, head of ETF research at VettaFi. He declined to comment on the Azoria ETF.
Bryan Armour, ETF analyst at Morningstar, said a small ETF may struggle to exert leverage on corporate America. “It will be really hard to gain power and influence,” Armour said.
Armour said that the mutual funds and ETFs that have had the most success trying to persuade companies to embrace diversity and sustainability — the ESG funds to which Fishback seeks to offer an alternative — have been those that engaged as shareholders rather than by excluding them from their portfolios.
According to Morningstar, there are now a total of 223 U.S.-based ETFs with an ESG focus with a total of $110 billion in assets. One of the largest of these funds, the Vanguard ESG US Stock ETF, has posted a gain of 27.45% so far this year compared to 28% for the S&P 500. The group of ESG funds have recorded an average return of 10.7% so far in 2024.
Azoria Partners plans to play an activist role in trying to persuade companies to reverse those policies.
Among the speakers at the event to mark the filing is Cathie Wood of Ark Investment, who is scheduled to speak on a panel to discuss the macro investment environment, Fishback said. Other event invitees include Kevin Roberts, president of the Heritage Foundation, a conservative think tank.
Wood declined comment. Roberts could not be reached for comment.
Fishback said he did not know whether the president-elect will attend the event. The Trump transition team did not respond to a request for comment.
