Engine No. 1 is launching an exchange traded fund (ETF) with $100 million in assets, a bet Main Street investors want portfolios to back ESG proposals on the heels of the hedge fund’s boardroom victory at Exxon Mobil Corp., company executives said.
Roughly four weeks after shareholders broadly supported Engine No. 1’s call for Exxon Mobil to improve its financial performance and overhaul its clean energy strategy by electing three of its directors to the oil giant's board, the new firm is rolling out Transform 500 ETF, whose ticker will be “VOTE”.
The new ETF will invest in the 500 biggest U.S. stocks and track the Morningstar U.S. Large Cap Select Index. It seeks to differentiate itself from hundreds of similar portfolios by trying to change corporate behavior through annual voting on ESG proposals such as climate-related or gender pay equality issues.
The ETF may also, from time to time, engage with management directly to push for changes.
Engine No. 1 teamed up with Betterment, the digital investment advisory company with a network of 650,000 clients and $30 billion in assets, which will integrate the new ETF into all of its socially responsible investing strategies.
Until now fighting corporations to sell off divisions or replace top executives has largely been limited to activist hedge funds such as Starboard Value or Elliott Management.
Engine No. 1, which launched with $250 million in December, is now offering products available to Main Street and Wall Street investors, tapping into retail investors’ frustration that their main stock portfolios often don't address ESG concerns.
“We’re harnessing the power of investors in a new way to actually drive impact by how we vote our shares and work directly with companies,” said Michael O'Leary, managing director of Engine No. 1. The firm expects to create more ETFs.
Part of its allure will be low fees. VOTE’s annual expense ratio will be 0.05%, less than mutual funds that often charge between 0.5% and 1%. It is also far cheaper than the average activist hedge fund, which requires a minimum investment of one million dollars and often charges one-fifth of the profit in fees.
The new ETF will compete in a crowded field largely dominated by Vanguard, BlackRock and State Street. The firm hired executives who previously worked at BlackRock’s iShares business, Bain Capital and J.P. Morgan among others.
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