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September 11, 2017 at 04:13 AM
You’ve probably heard about ETFs that focus on sustainable, environmental, social and governance (ESG), and impact investments. They’re generally designed to either exclude companies deemed to hurt society or favor companies that benefit it while also earning profits for investors.
(Related: Why Advisors Should Guide Clients on Philanthropy, Impact Investing)
There’s growing evidence that these approaches do not impair performance and in some cases enhance it, but the social impact of these funds remains unclear, which is a concern for some investors and a challenge for ETF creators.
Now some ETFs have adopted a different model to address social issues by dedicating a portion of their revenues to charity. The money doesn’t affect investors’ earnings but rather the profits of their creators.
(Related: Introducing Swell, a New Impact Investing Platform: Portfolio Products)
Infrastructure Capital Advisors (InfraCap) has launched two ETFs that allow the firm to allocate 10% of its revenues to fund Tutoring America, an organization founded by the firm’s founder, CEO and president, Jay Hatfield, that aims to close the education gap among low -income youth.
(Related: 2 Very Different Approaches to Sustainable Investing)
The donations don’t come out of investors’ earnings but from the revenues InfraCap collects, says Hatfield.
InfraCap MLP ETF (AMZA) is an actively managed ETF, comprising midstream energy master limited partnerships (MLPs) involved in the gathering, processing, transportation and storage of crude oil, natural gas, natural gas liquids and refined products. The $483 million ETF has lost 5.3% year to date, but it yields almost 23%.
InfraCap REIT Preferred ETF (PFFR) invests in high-yielding liquid preferred securities issued by real estate investment trusts (REITs) and tracks the REIT Preferred Stock Index. The ETF has $19.5 million in assets and invests in securities whose yield to worst (lowest potential yield if the security is called or held to maturity) is 3% or higher. Since inception in early February, the ETF has gained 4%, compared with 3.6% for the Vanguard REIT Index ETF (VNQ).
