New anti-woke ETF takes aim at Starbucks

In what some might consider an ironic move, a new anti-woke ETF is being launched with a strategy to exclude S&P 500 companies that propose to foster inclusion in their hiring practices.

The actively managed ETF, led by Azoria Partners, is designed to counter corporate diversity, equity, and inclusion policies, is slated for launch early next year under the ticker SPXM, short for S&P Meritocracy.

In an interview with the Financial Times, Azoria co-founder James Fishback argued that DEI hiring policies have harmful unintended consequences

“Americans, whether they voted for president Trump or not, do not want to invest in companies running woke science experiments,” Fishback, whose stint as a trader at David Einhorn's Greenlight Capital ended in a bitter summer 2023 split, told the Times Wednesday. "We are representing shareholders here, and human capital hiring quotas – that hurts all shareholders.”

In a gathering at Donald Trump's Mar-a-Lago Resort in Florida, the latest member of the movement pushing back against ESG tagged Starbucks, known for its stance promoting racial and ethnic diversity within its organization, as the first name on its hit list. The gathering featured speakers including Cathie Wood of Ark Investment Management and Kevin Roberts, president of the Heritage Foundation.

Starbucks, valued at approximately $110 billion, refuted claims it enforces hiring quotas. In a statement to the Times, the coffee franchise colossus clarified that its diversity policies – once aimed at reaching 30 percent racial and ethnic representation among corporate employees – had expired and were not renewed.

SPXM's approach contrasts with activist hedge funds like Elliott Management, which recently acquired a significant Starbucks stake to push for executive changes. Instead of shareholder engagement, Azoria aims to influence corporate behavior by excluding companies with diversity-focused policies from its portfolio and spotlighting perceived impacts on stock performance.

Like many other ESG critics, Fishback claims diversity-minded companies underperform their peers as they put demographics over other outstanding qualities in a candidate. There's research to refute those claims, however, including a 2022 McKinsey report that indicates firms in the top quartile for racial diversity were 39 percent more likely to financially outperform those in the bottom quartile.

And while the fervor around ESG funds has died down since its early-pandemic peak, some voices in the investment industry argue they'll still have a place for investors during Trump's presidency.

"Investors may turn further to ESG ETFs because they believe the government will not fully support their personal objectives," Todd Rosenbluth, head of ETF research at VettaFi, told Reuters Thursday.