A rising number of investors want to do good with the money they put in the market. Among the causes gaining traction in this category is workplace diversity: Investors want to support firms that recruit a diverse workforce and promote equal opportunity for employees.
Enter UBS’s LGBT Employment Equality exchange-traded fund, which the firm launched in January of this year. The ETF, a member of UBS’s InsightShares family of socially conscious funds, connects investors with companies that “respect, protect and encourage” their lesbian, gay, bisexual and transgender employees. Companies in this fund include those that set an explicit non-discrimination policy for sexual orientation and gender identity, or promote LGBT causes in the wider community.
“We think it’s important to emphasize the social consideration of investing,” says Richard Cea, head of InsightShares. “This fund is meant as a tool people can use to help drive LGBT equality through their investing behavior.”
Adding the social perspective
The LGBT Employment Equality ETF (ticker: PRID) tracks the UBS LGBT Employment Equality Index, which UBS created to marry its own financial expertise with the social perspective of the Human Rights Campaign, the nation’s largest LGBT civil rights organization. The index first filters America’s 1,000 largest companies through its minimum requirements for liquidity and profitability. Companies must have an average daily traded value of at least $25 million and show a positive net operating margin over the past 12 months.
The index then continues to narrow the field by selecting only those companies that received an 85 or higher on the HRC’s latest Corporate Equality Index. That process winnows the original 1,000 companies down to just 300 stocks, and the index weights those firms by market capitalization.
Cea says the LGBT Employment Equality ETF falls squarely in the category of ESG investments, or companies that meet certain environmental, social or governance criteria. But the fund also borrows the more direct approach of ESG’s cousin, impact investing: “We donate a portion of the fee to an LGBT charity,” says Cea. “It’s another exciting part of this fund.”
No longer a trade-off
To many investors, socially conscious investing is something of a tradeoff: Aligning your invested money with your values even though it may dampen your portfolio’s performance. Cea rejects that “nice guys finish last” notion. Indeed, researchers have highlighted the competitive benefits of companies that meet ESG criteria. Research firms like McKinsey have published studies suggesting that greater diversity helps drive stronger corporate performance. “Intuition says that when employees feel valued and included, and you’re drawing from the deepest talent pool possible, you can perform better as an organization,” says Cea.
Also working in the fund’s favor is the fact that its investment pool is anything but narrow—despite the strict selection criteria. Cea says the fund could have focused on a smaller group of investments, but notes that UBS designed the fund not to purposely exclude based on particular sectors or other factors: The fund’s 300 companies tilt toward technology and slightly away from energy, but otherwise look very similar to a large-cap core portfolio. “If it has good LGBT policies, it can have a place in our index,” says Cea.
Stand out from the crowd
The ETF offers your clients a simple and seamless way to invest broadly while supporting LGBT causes. What’s more, this ETF can help advisers differentiate their services: Consider presenting the fund to your clients who make donations to LGBT nonprofits and causes. Doing so may give them another avenue to align their finances with their values—and give you another way to diversify your services and deepen your client relationships.