Always make people work as hard to take your money as you did to earn it. In the same manner, you shouldn’t invest in companies that don’t have your best interests in mind. Fiduciary responsibility is a term used to describe the obligation firms have to act in the best interest of shareholders. For example, companies that choose to hire talent based on criteria other than merit are breaching their fiduciary responsibility to shareholders which is to employ the most qualified person for any given role. Our presentation on how Diversity Damages Shareholders explains this problem in detail.
The emergence of socially responsible investing – commonly referred to as ESG which stands for Environmental, Social, Governance – has started receiving backlash. We’ve been condemning this framework since inception, most recently in our video on ESG Investing Exposed. The domain consists of half a dozen ESG “experts” who analyze stocks using an opaque set of criteria that differs dramatically across vendors. Look no further than the returns of the three comprehensive providers of ESG ratings – MSCI, S&P, and Sustainalytics – which are all weakly correlated.
The problem will only get worse. MSCI’s CEO talks about how he sees the future of his firm being ESG. Not surprisingly, he’s been fielding complaints from Twitter activists who chastise his company for including oil companies in ESG indices, something that simply happens when you’re building market cap-weighted passive indexes. That’s a good segue into an even bigger problem that’s emerging in the investment community.
Shareholder Engagement
If you don’t understand the difference between passive and active investing, read our piece on What Institutional Ownership Really Means. The growth of passive investing means three large investment firms – BlackRock, State Street, and Vanguard – have become the largest institutional holders of 88% of S&P 500 stocks. This means they can start to dictate the narrative for companies by forcing them to adopt the opaque ESG directives du jour. Most influence exerted by the Big 3 over publicly traded companies is not via proxy voting, but via “shareholder engagement.” Large companies now have entire departments dedicated to communicating with engaged shareholders who demand adherence to ESG “values.” This has prompted companies to proactively address ESG issues at the highest level.
The Business Roundtable (BRT) is a nonprofit lobbyist association whose members are chief executive officers of 180 major United States companies such as Apple, Walmart, P&G, JNJ, BlackRock, and PayPal to name a few. The policy perspectives addressed by this group include political issues such as “racial justice,” immigration, climate change, and the purpose of a corporation which was recently expanded to include additional stakeholders such as suppliers and communities.
While some of this sounds good on paper, mention of “diversity and inclusion” across these stakeholders is a huge red flag. Shareholders have now been placed at the bottom of the priority list, while nefarious individuals use this opportunity to extort money from BRT members.
McDonald’s is now being subjected to a $10 billion lawsuit because “media mogul” Byron Allen is upset McDonald’s didn’t send advertising dollars his way. Yes, McDonald’s is racist because Mr. Byron Allen happens to be the same as Elon Musk – an African American – and McDonald’s wisely chose not to do business with someone who lacks integrity. That lawsuit is on the heels of Mr. Allen’s last shakedown which involved settling out of court with Charter Communications who he sued for racial discrimination. An article by Deadline on the topic mentions a third $10 billion lawsuit Mr. Allen has brought against Comcast.
Charter will continue to lose this case, and I am going to make an example of them for all of America to see, because structural racism will not be tolerated. Systemic racism kills us in the schoolroom, kills us in the boardroom, and kills us in the courtroom, long before it kills us in the streets,” Allen continued. The Entertainment Studios founder and CEO has also brought a similar lawsuit against Comcast, also $10 billion, accusing the media conglomerate of racial bias and alleged violations of the Civil Rights Act.
Credit: Deadline
Another way to put it is that Mr. Allen is repeatedly attempting to extort money from some of America’s most ESG-conscious companies. One wonders just how many of these lawsuits Mr. Allen will launch before the courts put an end to this debacle.
Watching firms like McDonald’s engage in public self-flagellation about how they’ll “do better” is indicative of a broken system where companies are forced to act against the best interest of shareholders because of vocal activists. Just ask the Board of Directors at Apple who voted against having a third-party “racial equity audit,” but were forced to because of pressure from activist shareholders. Given the amount of damage that ESG has been incurring on organizations, it’s easy to see the appeal of anti-ESG products. That’s where Strive Asset Management comes into play.
Strive’s Anti-ESG ETFs
Strive Asset Management was co-founded by Vivek Ramaswamy, someone who last came across our radar in a 2017 piece titled A Story About Roivant, Axovant, and Myovant. Since then, he has dove headfirst into combatting the influence politics has been having on corporate America. Politics has not only divided society like never before, but it’s also threatening to destroy some of the world’s most successful multinational corporations that we’ve invested our hard-earned dollars in. Now, Mr. Ramaswamy has moved beyond just writing a best-selling book about the topic, and has created an asset management firm that hopes to fix the problems in much the same way they’ve been created – by applying pressure to companies through the avenue of share ownership.
We compete directly with the world’s largest asset managers by creating investment products that advocate for the pursuit of excellence over politics in boardrooms across corporate America – starting with index funds.
Credit: Strive Asset Management
Strive’s index funds are nearly identical to those offered by other large asset managers except they don’t represent the interests of activists who believe shareholders’ interests should take a backseat to whatever “values” their ideology dictates. Three months after the launch of its first fund, Strive has accumulated half a billion in assets with all seven of their ETFs becoming available on some of the largest 401k provider platforms in America.
The Strive 500 ETF (STRV) provides a return profile that’s 99.9% correlated to the S&P 500 with an expense ratio that’s just 0.0545%. Here’s how that compares to similar ETFs from the Big Three.
| Ticker | AUM Billions | Expense Ratio | |
| BlackRock | IVV | 295 | 0.03% |
| State Street | SPY | 367 | 0.09% |
| Vanguard | VOO | 747 | 0.03% |
| Strive | STRV | 0.078 | 0.05% |
Strive’s competitively priced anti-ESG ETF will engage with C-suites and boards to start prioritizing excellence over politics. The approach is similar to how activist investors identify value in companies that can be unlocked by taking dramatic actions which won’t happen without external pressure. The company is just getting started with seven ETFs launched and hopefully more to come.
While these investment vehicles offer a way to combat the dangers of ESG policies on shareholder returns, these problems persist in the tech sector where we’re increasingly seeing problems with larger firms adopting divisive policies that erode value over time and decimate productivity.
How ESG Disrupts Technology Firms
Activism has become particularly prominent in the tech world where the world’s most competent engineers work to build hugely profitable businesses while droves of incompetent freeloaders, people who couldn’t sling code to save their lives, come around to enjoy the benefits. The amount of bloat at Twitter is a great example of how tech companies quickly become cesspools of mediocracy when emphasis shifts from performance to “inclusiveness.” Elon Musk recently posted a tweet showing a cabinet full of t-shirts with political slogans and an ex-Twitter employee replied – without a hint of irony – that their team “spent a lot of time producing those shirts.” Twitter became a software company where only a small percentage of employees could actually write code while the rest just impeded those who were actually trying to add value.
Over the years, we’ve become increasingly concerned as politics permeates workplaces and senior managers spend more and more time fighting fires started by activists. You might recall some years back when Sundar Pichai – the CEO of Google – started spending most his time dealing with a toxic team of incompetent activists masquerading as artificial intelligence ethicists who became unemployable after trying to sabotage one of the world’s biggest companies. Those red flags promoted us to start exiting our Google position which we had been holding since their IPO.
It’s time for shareholders to start demanding that companies focus on excellence, not politics. Many individuals are understandably shy about expressing their concerns because malicious actors out there would prefer that those “bigots” who disagree with them should lose their livelihoods. Employers yield to their demands in fear of being attacked themselves. What nobody seems to realize is that when you stand up to these ideologues, they quickly fold like origami. Strive seems like a good way for the silent majority – those who can’t express their opinions vocally – to start voting with their wallets.
Conclusion
Most our capital is allocated to a dividend growth investing strategy – Quantigence – that provides reliable growing income streams. The money and resources companies spend on dog-and-pony shows for the ESG types represents lower dividend payments in the future which means these divisive policies impact our quality of life. How can we put an end to these corrosive ESG initiatives that threaten our livelihoods? Strive’s ETFs provide one possible solution, but we also need to be more vocal in insisting that companies focus on excellence, not politics. Always make people work as hard to provide a return on your capital as you did to accumulate it.
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