What You Need to Know
- VOTE will use proxy voting, corporate engagement and shareholder proposals in order to have an impact on corporate policies.
- It is an activist large-cap index ETF, which is unusual for passive funds.
- Engine No. 1 used an activist approach to successfully replace three members of ExxonMobil's board this spring.
Engine No. 1, the novice purpose-driven investment firm that took on ExxonMobil and won, has entered the ETF market, launching a new large-cap stock index ETF that will focus on proxy voting, corporate engagement and shareholder proposals in order to impact corporate policies.
The Engine No. 1 Transform 500 ETF (VOTE) trades on the Cboe, tracks the Morningstar Large Cap Select Index and has a net expense ratio of 0.05%. It debuted Wednesday with $100 million from institutional investors and announcement that it will be integrated into Betterment’s platforms for retail investors, advisors and 401(k) plans.
“Too many sustainable investing strategies shift an investor’s exposure away from companies that need to change rather than working to change them,” said Engine No. 1 Managing Director Michael O’Leary in a statement. “We see an opportunity to harness the power of investors in a new way.”
What’s new about the ETF is that its purpose is to be an activist investor that helps effect corporate policies, which is unusual for index funds.
“The problem isn’t passive investing. “It’s passive ownership,” said O’Leary.
A New Kind of Socially Responsible Index Fund
Engine No. 1 showed that activism when it sponsored a slate of four nominees to Exxon’s board of directors at its shareholder meeting in late May to drive a stronger response to climate change. Three of the four nominees won. BlackRock voted for three of them and Vanguard and State Street each voted for two, illustrating the power of index fund managers.
“Because our purpose is to do only this, we can lead in ways that others struggle to do and hope to bring other [large investors] along as well,” O’Leary told ThinkAdvisor. He noted that only 20 of 186 social and environmental shareholder proposals in 2020 passed. “This is an opportunity to engage clients without changing their underlying exposure.”