111. Is this stock anti-racist?

Welcome to Progressive Pockets! I go by GG, that’s short for Genet Gimja. We are gathered here today to talk about feeling like an aligned person. Feeling like the way that we vote and the way that we invest are aligned. Amen? Amen. LoL. I’m feeling a little silly today. But please if you are new, this is not a religious show in the least bit. You are welcome here.

So today I want for you and I to talk about an ETF that I bought a few years ago. It’s called NACP. And I want to talk about it because I have mixed feelings. So NACP is the stock ticker, you can easily look it up, I’m going to include a link so you can read a ton about it.

I am not a financial advisor. I am not a financial planner. I am not any kind of certified legally authenticated type of investment advisor of any sort. I make financial decisions for me and my household and that’s it. So what you’re not going to hear from me today is any kind of financial or investing advice for you. Ok, I think we’re clear on that.

I just want to tell you about this ETF that I came across a few years ago. It’s inception date was 2018 and it comes from a nonprofit called Impact Shares. Have you ever heard of them? Impact Shares whole thing is trying to help organizations translate their social values into an investable product. Their slogan is “MONEY TALKS. IS YOUR MONEY SAYING WHAT YOU WANT IT TO SAY?” And so they have different ETFs, at the time of recording they have three. One has the ticker WOMN in that one Impact Shares has partnered with the YWCA and it’s theme is women’s empowerment. They have OWNS and the theme for that one is affordable housing and then they have NACP and the theme is minority empowerment.

That’s the one that I have. You can get it on any of the major investing platforms. It’s just an ETF and as such it is comprised of companies from the Morningstar Minority Empowerment Index.  

Here’s what Morningstar has to say about that index:

The Morningstar Minority Empowerment Index is designed to provide exposure to US companies that have embedded strong racial and ethnic diversification policies into their corporate culture and that ensure equal opportunities to employees irrespective of their race or nationality. The index pursues social objectives by selecting companies with high Minority empowerment scores, while companies with controversies are deemed ineligible.

So what Impact Shares has done is to create an ETF based on group of companies that was created with that criteria in mind and so now, we as individual investors don’t have to go out there and create this balanced investment portfolio of a bunch of different companies that meet this criteria, rather we can just grab this ETF and have this whole index of companies. So that’s the first positive social impact of this ETF but it goes one step further. Not only do we get this socially responsible ETF but Impact Shares is donating any of their net profits back to the NAACP. So it’s a double scoop of positive impact. We get to invest according to our values and NAACP gets the profit that Impact Shares otherwise would have received.

Perfect, right?

Well, it’s not perfect. And to be clear, that’s not the goal here on Progressive Pockets. We’re looking for progress, not perfection, and that’s why I did go ahead and buy this ETF. First of all, I wanted to register my interest in this type of a product. This phrase “register our interest” is something that Kyle Purcell said to me at a conference last year and it perfectly encapsulates this idea of yes this product can be improved but let me vote with my dollars, let me make it clear, let the record state that there are people who want to buy something like this. Keep improving it, but know that we want it. So I was comfortable buying the ETF and registering my interest and following what would happen with it over time.

First thing you need to do is brace yourself for the imagery on the website, ok? If you heard episode 107 about Dr. King’s Radical Money Beliefs you know how critical he was of capitalism and especially the way that we are doing it here and now. He was assassinated when he was working on his Poor People’s Campaign. He was organizing workers to fight for their rights. He was an advocate for a guaranteed income in our country. Nowadays we would call something like that a universal basic income. These are radical ideas. So to see his image on any investing product is….weird to me at least. Maybe it won’t bother you. I just wanted to give you a heads up so you didn’t immediately close your browser.

So the ETF is designed so that investors can get market returns with a broad set of U.S. large and mid cap companies. As of the date that I’m sitting here and recording the net assets are about $43 million and there are about 1.2 million shares out there.

I like how easy the Impact Shares website is to read about this ETF. You can see at a glance how the ETF has grown since inception. Annualized returns are at about 13%. That’s a lot, and so that is where you start to ask well what companies make up this fund. And how did they even get included? What’s the screening criteria?

I took a look at the Fact Sheet and found the criteria. Here they are:

Board Diversity › Discrimination Policies › Diversity Programs › Freedom of Association Policies › Supplier Diversity Standards › Community Development   Programs › Health & Safety Management    Programs › Conflict Minerals Programs › Media Ethics › Human Rights Programs  › Editorial Guidelines  › Advertising Ethics  › Human Capital Development  › Responsible Product Offerings  › Responsible Marketing Policies › Human Rights Policies  › Gender Pay Equality Programs  › Gender Pay Disclosure

Impact Shares started with the research done by Morningstar and NAACP’s Racial Equity Industry Report Cards and built from there. So I like that I can see what the criteria are.

So looking at the top 10 holdings, the biggest holding is NVIDIA at about 12% that’s a tech company. There’s a lot of tech here. I also see Apple. Meta. Amazon. Alphabet. Salesforce. I also see JP Morgan. And then I see Tesla. And this is where you really have to ask yourself how you feel about this.

Tesla has had some very public issues with worker’s rights. Black workers have reported barriers to promotion as well as threats and humiliation. Elon Musk has gone on a bit of an anti-DEI rampage implying that diversity oriented hiring programs provide unfair advantages to historically marginalized groups and are…anti-semitic? SIGH. You can’t make this stuff up.

So here we are. We’ve got this NACP ETF and it has Tesla in it. What do we do? I didn’t even get to the climate implications of some of the companies in this holding. I will include a link to the rating from fossil free funds dot org. It’s not great.

You might come to a different conclusion than I did and I would love to hear about that. For me, I decided to register my interest and buy it and now I watch. Even better would be if I actually used my voice as an investor and actually engaged. I can do more.

And that brings me to the next thing I looked at which was Impact Share’s corporate engagement. We’ve talked about activist investing on this show before, there is power in owning a piece of a company. So in reading about corporate engagement, there are a couple of examples that I found interesting. The first one is with American Airlines. 

American Airlines was boycotted in 2017 by the NAACP for discriminatory behavior. American Airlines proactively worked with the NAACP to better understand their goals and expectations. After five years of collaboration, American Airlines had improved their relative score sufficiently within the airline sector such that they were included in the index and NACP fund and  are now recognized as a leader in minority empowerment. 

As of the day I’m recording, American Airlines comprised 0.04% of NACP’s holdings. That is a tiny amount, less than a tenth of a percent.

There’s also a bit about corporate engagement with Amazon, maybe it bothered you to see Amazon included in the fund. Here’s what it says:

In 2021, the Alabama State NAACP worked successfully to press for workers to gain the opportunity to vote on unionization.  Amazon scored low against our “Freedom of Association Policy” Social Screen, which is aimed at corporate policies permitting or encouraging unionization.  In 2022 Amazon workers cast their votes on unionization, a significant shift in company policy.   This new opportunity to decide on unionization is a result of the direct engagement of the NAACP, and continues the important legacy of advocacy on behalf of workers. Amazon comprised just under 4% of NACP’s holdings as of recording.

So what they’re saying is, we get it, you’re mad at Amazon, so were we. They were low on the freedom of association policy criteria that we have. But NAACP worked with them and then Amazon workers were actually allowed to vote on unionization.

What do you think? The energy is very much we know they can do better and we engage when we can. And if it looks promising, we include them. That’s the vibes that I’m getting as I read the material.

There’s another elephant in the room that I want to point out here, at the top of the episode I explained the double scoop of positive impact that this ETF is designed to have. First, we get a more socially responsible investment that we can buy. And second, the net profits that Impact Shares would have gained get donated back to the organization, in this case, the NAACP.

Well, it says very clearly on the website that they have not yet run this fund at a profit yet. So they have not made that donation to the NAACP yet.

The same is true for the WOMN ETF with the YWCA. The affordable housing ETF OWNS isn’t partnered with a nonprofit like that so it doesn’t have that same arrangement. But yeah, that’s something else we have to reckon with here. The funds are stil small enough that they aren’t generating a profit for Impact Shares. Investors are making profits and the fee we pay is low, at the time of recording it is less than half a percent, but more investors would have to buy in before it can result in a donation to the NAACP.

So to recap, here’s what we covered today:

1. Welcome to the world of social impact funds. Sometimes they are just bundles of stocks that relate to a theme, sometimes they promise to also donate profits back to nonprofits.
2. The NACP ETF is one of these innovations. It’s an ETF that was developed starting with research from by Morningstar and NAACP’s Racial Equity Industry Report Cards and built from there. 
3. The selection criteria has almost 20 measures designed to include companies with strong racial and ethnic diversity policies in place to empower employees of all races and nationalities.
4. Some of the companies in the ETF might not be home runs in terms of being anti-racist, but there is some corporate engagement that is happening, between the NAACP and the companies.
5. Donations to the actual nonprofit haven’t been made yet because the fund is still relatively small.

I’m super interested to hear your thoughts on this one, so email the show any time at progressive pockets dot com.

If you have a few more minutes, I want to suggest another episode that you might enjoy:

Episode 70 about The legal right to invest according to our values. Believe it or not, the very idea that a fiduciary would be able to consider these types of things like poor working conditions or climate change or racial and gender inequity, the right to take into consideration those types of factors is actually being fought in the courts. You can learn more about House Joint Resolution 30 if you’re interested on that episode number 70.

You know, I felt encouraged while I was doing this research for this episode. I started out skeptical. All I kept thinking about was that quote from Audre Lorde about the reality that we can’t use the master's tool to dismantle the master's house. And I still believe that, we can’t dismantle all of the harms of capitalism. But I do tend to leave this work, of taking the incremental baby steps inch by inch to get just some progress, I do find that encouraging. We still need huge sweeping overhauls of the systemic oppression that’s baked into the fiber of our country. We need that. But in the meantime, I do think we should do what we can. We can fight for the huge policy shifts while we take our individual action with our own wallets.

Let’s end with a quote:

This one comes from Archbishop Desmond Tutu:

“Do your little bit of good where you are; it is those little bits of good put together that overwhelm the world.”

Let's talk again soon!

NACP ETF

https://impactetfs.org/nacp-etf/ 

Fossil Fuel Free Funds Rating of the NACP ETF

https://fossilfreefunds.org/fund/impact-shares-naacp-minority-empowerment-etf/NACP/fossil-fuel-investments/FS0000DK8D/F00000ZTQL