The CHGX fund’s expense ratio of 0.75 percent is on the high side for an index-based fund, but Rodriguez believes it captures the work that goes into creating the index and the role Change Finance hopes to play as an activist company.
“Some people think that passive is the same and all passive is on the same level of ‘easy to do,’” he notes. “If we were doing a new S&P 500 ETF, it better be eight basis points. With what we’re trying to do with our high-value analysis and participating in shareholder activism, those pieces are more expensive than just running an S&P 500 index fund. As our fund grows we’ll likely lower our fees to be more competitive.”
Crowded Field
There are nearly 40 exchange-traded funds under the SRI umbrella, and they run the gamut from climate change and gender diversity to organic food and “conscious” companies with strong ESG credentials. Players in the space range from BlackRock’s iShares unit to small companies struggling to gain traction with investors.
And there are already three ETFs with a “fossil fuel-free” bent—the SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX), with $173 million in assets and an expense ratio of 0.20 percent; the SPDR MSCI EAFE Fossil Fuel Reserves Free ETF (EFAX), with $46 million in AUM and an expense ratio of 0.20 percent; and the SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF, with $16.6 million in AUM and fees of 0.30 percent.
In short, the sustainable/SRI/ESG segment has gone from fad to mainstream. And it’s fair to ask how much more it can be sliced and diced, and why a newcomer such as Change Finance thinks it can make inroads in this competitive market.
But the folks at Change Finance appear to be up for the challenge. “We’ll probably launch this product with between $15 million and $25 million out of the gate because of people saying they want to invest in this,” says Donna Morton, CEO of Change Finance. “That’s why we think we can punch outside of our weight class and show up with bravado on Day One.”
She adds that Change Finance offers something that most finance houses don’t have—namely, a track record of working with not-for-profit activist organizations.
And Morton notes that Change Finance has roughly 15 ETF products in the works based on the team members’ prior SMA portfolios, and they range from more standard allocations that meet their stringent SRI specifications to some very trend-oriented thematic products.
“We’re next making a product around gender equality,” she says. “We’re working with social justice activists on some edgy future products addressing poverty and unemployment issues. Essentially, we’re becoming an activist finance house. We’re listening to the activist community and trying to solve their problems, and in turn they’re following us closely and I think we’ll be able to mobilize a lot of people, including people who don’t have a lot of money.”