Anti-woke strategies emerge as flip side of ESG

As the asset management industry continues to fall over itself rolling out products tapping into the growing appeal of various environmental, social and governance causes, signs of new life are emerging in an anti-ESG niche category.

The latest example is the BAD ETF (BAD), which launched Wednesday to offer exposure to the gambling, alcohol and pharmaceutical industries, which rarely make the cut in ESG-themed strategies.

“These industries are time-tested and we know people will need medicine, drink alcohol and gamble,” said Tommy Mancuso, president and co-founder of The BAD Investment Co.

Mancuso, who has worked in the wealth management industry for seven years and is currently a financial planner at Prime Capital Investment Advisors, said he came up with the idea for the BAD ETF after watching the “proliferation of ESG funds flooding the market, despite a general lack of clarity.”

“We’re definitely a little contrarian and I think there’s a gap to be filled there,” he added. “I think there’s a lot of good things in ESG, but we don’t believe people should invest based on social stigmas alone.”

There is precedent for such strategies, even if the efforts so far are dramatically overshadowed by the fast-growing ESG category.

“There’s been a growing supply of ETFs that exclude companies tied to alcohol or tobacco, and this ETF provides a counter alternative,” said Todd Rosenbluth, director of mutual fund and ETF research at CFRA.

Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, who tackled the topic of “anti-woke” investment strategies during a recent episode of The InvestmentNews Podcast, suggested that the trend is being at least partially driven by what is seen as overreach from the ESG camp.

“For some people, the ESG thing comes off a little preachy sometimes,” he said.

Examples of anti-woke strategies include 2ndVote Society Defended ETF (EGIS), 2ndVote Life Neutral Plus ETF (LYFE), and Point Bridge GOP Stock Tracker (MAGA).

“I think they’re trying to tap into the anti-woke sentiment and the idea that you can express yourself,” Balchunas said. “It’s the kind of itch you might normally scratch when you vote. Think of it as the yang to ESG’s yin. Two sides of the same coin.”

While Mancuso insists his BAD ETF strategy is supported by some fundamental investing principals, it still falls into the category of the flipside of ESG.

That’s where Balchunas takes issue with strategies that try to leverage political positions to promote investment strategies.

He raises the question of whether people who are willing to invest based on their political values will be okay when those strategies underperform the broad markets. And he presents that same question to investors in ESG strategies.

“Is it worth it to express yourself or to have that feeling that you’re investing with your values?” Balchunas asked.

As more proof that both woke and anti-woke strategies are more about the good feelings than the good returns, Balchunas said most investors are still relying on the diversified, low-cost beta exposure from providers like Vanguard Inc. as core holdings.

“We know Vanguard has taken over the core of portfolios, so if you don’t go all the way, you’re still owning all the woke or bad companies you’re trying to avoid,” he said. “This is the big problem I have here. Anything trying to dislodge Vanguard from the core is probably not going to do it. If the point is to invest your values, wouldn’t you have to go all the way? I don’t believe anyone will do that.”