Why The New "Anti-Woke" ETF Is a Terrible Investment
Don't let politics impact your portfolio
Nowadays, people need to express their political views in every aspect of their life.
While very few people in the real world are interested in your politics, I can assure you that your money does not give one single s*it about your opinion on anything—including your political views.
So, it is very predictable that there is now a recently launched “Anti-Woke” ETF whose sole investment strategy is to “punish” what they deem to be “woke” companies.
It’s also very predictable that this will likely not be a winning strategy—can you even call using investor money to act out your political revenge an investing strategy?
According to the Financial Times, the fund's first target is Starbucks, as the fund's founders are angry that Starbucks's hiring practices “factor in diversity.”
So, how do they plan to punish these woke companies?
“Unlike an activist hedge fund, which buys stakes in companies to agitate for change, Azoria will push its agenda by excluding companies from their index and publicly claim DEI policies are hurting their stock price.”
So, basically this one tiny investment fund will punish some of the largest corporations in the world by not buying their shares and releasing press releases about DEI?
Politics and investing mix like oil and water
While the “anti-woke” ETF strategy is particularly laughable, the truth is politics of any kind have no place in your portfolio.
That is unless you are already so wealthy that it doesn’t matter if you lose money on your investments.
I’ve written in the past how so-called “thematic ETFs” which seek to capitalize on political movements and assets that connect to things that certain groups of people care deeply about.
Examples might include a fund that focuses on environmental outcomes, a fund that invests in AI companies, or even investment funds that buy up weed companies. And now, we can add this “anti-woke” ETF to the long list of companies that seek to exploit your personal passions for profits—Remember, even if an actively managed ETF performs terribly, they still charge you the same fees.
Here’s what I wrote in my previous article on thematic ETFs:
The dreadful performance of thematic ETFs is captured perfectly in a 2021 paper titled “Competition for Attention in the ETF Space” written by Ben-David et al.1 In this paper, the researchers lay out the scenario in which most thematic ETFs are created.
A particular technology or societal issue gains momentum in the public consciousness.
Right around the time excitement for that issue peaks, a thematic ETF is launched.
Given the excitement for this new trend, valuations of the companies within the thematic fund often peak in a similar timeframe.
Money pours into the thematic funds, further driving up valuations.
Eventually, the excitement wears off, and stock prices come tumbling back to reality.
The researchers found on average specialized ETFs lose 30% of their risk-adjusted value within five years of the ETF launching. They found that this underperformance was not driven by fees (which are high) but by the overvaluation of the stocks within the fund.
Here’s the quote that brings it all together.
“Overall, providers appear to cater to investors’ extrapolative beliefs by issuing specialized ETFs that track attention-grabbing themes.”
Thematic ETFs primarily exist to extract investment fees from investors willing to hand over their cash to fund managers exploiting their personal beliefs.
So, whatever happens with this anti-woke ETF in the short run, its investors are very likely to lose money in the long run because seeking attention is not a real investment strategy.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.