Today, we are thrilled to announce that we will begin integrating the VOTE ETF, recently launched by Engine No. 1, into Betterment’s socially responsible investment portfolio.
This new ETF 500 invests in the largest U.S. companies, weighted according to their size, with a management fee of only .05%. You might think that it looks a lot like a garden diversity index fund that has been the S&P 500 – a product for many years.
So, why the excitement?
In short, the $VOTE index represents a highly innovative approach to pushing the economy towards stability through fund investment. It can be “passive” in the conventional sense – buying shares in companies based entirely on an index – but it is “active” when it comes to associating with those companies as shareholders.
Outside of Isolation: What is Shareholder Participation?
Or historically, price-linked investing has often become synonymous with avoiding certain stock purchases এটি a practice often referred to as “splitting”. The alternative to division is “busyness”. Owning a stock, and using the right to vote in the shareholder resolution, you can try to change the activities of the company from the inside.
Vanguard, Blackrock and State Street – the “Big Three” largest fund manager – are collectively the largest shareholders in most companies, but the boat has historically been reluctant to rock the boat and aggressively challenge management. As a result, when it comes to investing through index funds, the full potential of shareholder involvement to bring about change has not been tapped.
Engine No. 1’s new $ VOTE ETF promises to change that. To understand why, it helps to understand the mechanics of how shareholders can push for change.
Buying stock in a company gives you the right to influence its decision making, not a part of its profits. This process is called “proxy voting”, which can be a powerful tool that has the power to transform the overall economy, company by company.
Publicly traded companies act like semi-democracies, accountable to their shareholders. They hold annual meetings, where shareholders can vote on a number of issues. Shareholders who do not agree with some aspects of how a company conducts business can engage with management and if they feel they are not being listened to, they can make an “shareholder proposal” and present an alternative approach.
If they can convince the majority All If shareholders vote in favor of the proposal, they can cancel the management. When more drastic changes are needed, such “activist” shareholders can replace management entirely by nominating their own candidates for the company’s board of directors.
Shareholder Activism: Social change through engagement
There is a multi-layered history of social change through shareholder activism. 1 In early 19551, civil rights leader James Peck continued to fight in the proxy arena by submitting a shareholder proposal to the Greyhound Corporation, recommending that the bus operator cancel separate seats in the South.
Seventy years later, on May 2, 2021, activist Hedge Fund Engine No. 1 shocked the corporate world by winning a proxy war against the current leadership of ExxonMobil, persuading a coalition of shareholders to elect three of its own candidates to the board. The first case centered on climate change.
Engine No. 1 argued that Exxon’s share price was lower than that of its peers because the company was not ready to move away from fossil fuels. It nominated candidates for the board which would push the oil giant towards adopting renewable energy. Against all odds, with only .02% of Exxon’s stock, Engine No. 1 prevails.
Corporate boardrooms across the S&P 500 are buzzing, asking them what the Exxon coup means. Where will environmental and socially conscious investors strike next? These questions are justifiable: the Exxon campaign was the first, but it certainly won’t end.
“Index Activation”: Bringing energy to the people
Individual investors are increasingly aware of proxy voting as a domain, through which their portfolio can channel their values. In a recent Morningstar report, 1% of survey participants said that how they cast their 101 (k) votes should depend on sustainability.
However, most Americans, including Betterment customers, do not buy stocks of companies like Greyhound or Exxon directly, but through index funds.
When you buy a share of an index fund, the index fund manager uses your money to buy the company’s stock on your behalf. As a shareholder of the fund, you benefit financially when the value of these underlying stocks increases, but the index fund is technically the shareholder of each individual company, and the right to participate in the proxy voting process of each company.
As more investors tell the industry that they want to advance their dollar sustainable business practice, the Big Three are feeling the pressure to work out these choices in their proxy voting practice.
This year they are showing some signs of change. Significantly, the Big Three eventually joined the Alliance of Engine No. 1, which could not have won against Exxon without their support. However, even if the Big Three, which manages trillions on behalf of individual investors, stays by the side of employees, What is missing is a way for individuals to invest their dollars not only to support these campaigns, but also to lead them.
Which makes that VOTE special
Activist shareholder campaigns are usually run by hedge funds, and what happened with Exxon was no exception. However, anyone can invest by launching ETFs, Engine No. 1 wants to break that mold.
In 2020, investors invested ৫০ 50 billion in a sustainable index fund – twice as much as in 2019 and ten times as much as in 2018.
First, instead of undermining its efforts, $VOTE wants to lead a handful of campaigns, forcing companies to improve their environmental and social practices. A focus on the most impactful and most powerful narrative will continue to raise awareness for the power of shareholder activism.
Second, $ VOTE is designed for mass adoption, not as a special strategy. Tracking a management fee of only .05% and a market cap weighted index, $ VOTE is designed to prevent any trade-offs of long-term returns. It is also suitable for investors to retire এবং and to this day, it will enter its first 401 (k) plan through Betterment for Business.
What does VOTE mean for investors?
We know that many of our clients want to invest for real impact, especially if they can do so without abandoning their long-term financial goals. If you invest through Betterment’s three socially responsible investment portfolios, $ VOTE’s target will be equal to 10% exposure to U.S. stocks.
With that VOTE in your portfolio, you will know that any engagement after Engine No. 1 is directly supporting your dollar. As their subsequent works are published, we will monitor their efforts, and update our clients on the impact of their investment.
Now that VOTE exists, anyone can invest in it, not just better customers, which is a big deal. The bigger it is, the more it can change and as an investor you can help write the next chapter.