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Fund News Advisors Can Use: Morningstar Study Reveals Diversity Metrics Influence Investors’ Fund Allocations

In this week's fund news, a new Morningstar report shows investors are more likely to allocate to funds based on diversity data; Wave Financial Group launches an NFT fund; and Wells Fargo, JP Morgan bring Bitcoin funds to wealthy clients.

A subcommittee of the Securities and Exchange Commission recently recommended the agency require investment companies to disclose the gender and diversity makeup of their fund boards, workforces, officer ranks, and owners of advisory and subadvisory firms. Also this month, the SEC approved a Nasdaq rule requiring all companies listed on Nasdaq’s U.S. exchange to publicly disclose diversity data of their boards of directors.

And a report released by Morningstar this week suggests investors are more likely to allocate to funds within their retirement plans that have high diversity, equity and inclusion or gender equality scores, as well as to asset managers with diverse workforces.  

According to the new study, written by Steve Wendel, head of behavioral science at Morningstar, and Michael Thompson, behavioral researcher, survey participants who received diversity-related metrics allocated 6.7 percentage points more to funds with high DEI scores and 7.3 percentage points more to funds with high gender equality scores. That compares with participants who were given only financial information about the funds.  

In addition, compared with participants who were given standard information, those given DEI information allocated 13.2 percentage points more to funds whose asset managers have high DEI scores, and allocated less to funds with low-to-moderate or missing DEI scores.

“While standard financial metrics of fees and performance remain the crucial factor that influences how plan participants make fund allocations, our findings indicate potential investors are willing to also pursue goals of supporting funds because of their strong diversity, equity and inclusion (DEI) or gender equality scores or which have asset managers with strong DEI scores,” the report stated. “Investors may have an underlying belief that funds and asset managers with strong DEI and gender equality will also outperform in the future, or it may mean that investors have non-pecuniary goals and simply value DEI and GE above and beyond risk-adjusted returns.”

New NFT Fund Hits the Market

Wave Financial Group, a Los Angeles–based registered investment advisor focused on digital assets, has launched a new fund that invests in non-fungible tokens, or NFTs. The Wave NFT Fund will be structured as a three-year closed-end fund, offered via private placement to accredited investors in the U.S. and qualified investors internationally.

Seventy percent of the fund will be invested in collectibles, or digital art, while the remaining 30% will invest in protocols and platforms, such as Universe XYZ (a platform for creating, displaying, distributing and producing social media content around an Ethereum-based token, $XYZ). The fund will charge 2% of assets under management, plus a 20% performance fee. The minimum investment will be $100,000.

“By being active members in the community and engaging in social media channels, the fund managers strive to learn about exclusive drops before their release,” Wave writes in a deck on the fund launch. “Minting NFTs right at the drop may give the fund access to rare NFTs. Buying NFTs shortly after a drop may still position the fund to purchase NFTs at low prices before the market attributes the correct value to rare traits.”

The news comes as the NFT market is increasingly popular. Last month, NFT trading platform OpenSea saw more than $1 billion in trading volume. In the first quarter of this year, more than $2 billion traded in NFTs, 131 times the volume of the first quarter 2020, a Wave spokesperson said.   

Wells Fargo, JP Morgan File to Bring Bitcoin Funds to Wealthy Clients

Wells Fargo has filed with the Securities and Exchange Commission to bring a passive Bitcoin fund to its wealthy clients. The firm has partnered with the New York Digital Investment Group (NYDIG) and FS Investments to launch the fund, according to Coin Desk.  

J.P. Morgan has also filed for a passive Bitcoin fund this week, according to Fortune, and it is also partnering with NYDIG on the offering.

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