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The Tidal Financial Group (Tidal) expanded rapidly over the last decade and encompassed multiple ETF related brands including Toroso Investments, Tidal ETF Services, and the ETF Think Tank. Going forward all activity will be unified under the Tidal brand as we become one company, dream, family, and platform focused on holistic ETF customer solutions.

Get Think Tanked Distilled with John O’Connell

The topic of environmental, social, and governance (ESG) investing is a polarizing one. For every individual who advocates for it, there is another who rails against it. John O’Connell, the CEO of Oasis Group and author of the book “Rise of the Activist Investors”, falls into the first group. He believes that people who get involved in shareholder activism and continue to have discussions around it can create positive change. He joins the ETF Think Tank to discuss this and where the ESG space might head in the future.

The term “activist investor” can stir up some negative stereotypes. In reality, O’Connell thinks this can be very positive and details in his book the arc someone can take from the very early stages to professional activist. Groups he calls “passive investors” and “casual activists” show interest and may start investing in broader ESG funds. “Beginner activists” start to narrow their investment portfolio to more accurately reflect their personal views. When you get up to an “influencer activist” and “professional activist”, you start trying to bring others into their circles to actually effect changes in companies through proxy votes.

What is driving some of this change is that young and socially conscious investors are using the power of their voices. Events, including Occupy Wall Street and the Me Too movement, have enhanced the visibility around vocalizing personal values. Once you add in the growth of ultra-low-cost investing through platforms, such as Robinhood, you can much more easily merge the two. Value-matched investing has become much easier and much cheaper to do. Even several years ago, it would have been difficult to see this development in the investing space.

O’Connell believes that part of the reason why ESG is controversial is because there are so many definitions. The criticism comes with looking at individual holdings within funds and finding anomalies. There is a lack of consistency around the data and definitions and that always has investors asking “why is this company in or out”. Another problem is that there are well over 100 different ESG factors, but it ends up getting boiled down to just three letters – ESG. This tends to oversimplify a very complex issue. Analytics firms are trying to develop more robust and consistent measures and data sets, but some investors will keep looking at portfolios and claim they are bogus or there’s greenwashing. The fact that people are talking about this emotionally is great because that’s how you’ll see change.

There’s some disagreement on whether direct indexing or an ETF is the better means of ESG investing. A casual activist may find an ESG fund “close enough” over time. As you move up the chain, you may want a direct index or more specific product. The counterargument is that direct indexing does not work as well because it needs the group. You can still have the client discussion, be an activist through an ETF and have a group to support it.

Other key takeaways:

  • O’Connell says that ESG investing without activism is pointless. Even just talking about it helps to advance the cause. The ability to connect with others that have similar views is what’s going to drive change.
  • Connecting with like-minded people can be great, but it can also be a minefield. It can be potentially dangerous if you swing too far in one direction or another, but if we find enough people who truly do care, O’Connell thinks we’ll be in a better space.
  • Corporate raiders, who manage to control enough shares to break up a company whether they liked it or not, have had a detrimental effect. Breaking up an underperforming company may or may not be a bad thing but imposing your will on a large enterprise could end up being counterproductive.
Disclosure

All investments involve risk, including possible loss of principal.

The material provided here is for informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Toroso nor any of its affiliates guarantees any rate of return or the return of capital invested. This commentary material is available for informational purposes only and nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security and nothing herein should be construed as such. All investment strategies and investments involve risk of loss, including the possible loss of all amounts invested, and nothing herein should be construed as a guarantee of any specific outcome or profit.  While we have gathered the information presented herein from sources that we believe to be reliable, we cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed herein are our opinions and are current only as of the date of distribution, and are subject to change without notice. We disclaim any obligation to provide revised opinions in the event of changed circumstances.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Toroso or its affiliates or any of their officers or employees of Toroso accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Toroso. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of and observe such restrictions (if any).

Topics: Get Think Tanked Distilled

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