ETF shop that shorts Cramer has sights on anti-ESG

An ETF shop known for shorting Jim Cramer’s and Cathie Wood’s stock picks is preparing to bet against a different category: ESG.

On Tuesday, Tuttle Capital filed with the Securities and Exchange Commission to launch two products: the Inverse Socially Conscious and Self Defense Index ETFs. The former would seek to invest in mid- and large-cap companies the advisor deems politically conservative or neutral while shorting stocks that it claims are “deemed to be following ‘woke’ policies,” the prospectus states. The latter ETF would hold stocks of gunmakers or sellers, as well as those specializing in home security equipment.

“As a shareholder, I’m investing to make money,” CEO and CIO Matthew Tuttle said. Conversely, considering sustainability or social factors means “investing in companies based on some ESG standards and not based on all the stuff I was taught in business school — profitability and value.”

The fund filings come as a prominent player in the anti-ESG space, Strive Asset Management, crossed the $1 billion mark for assets under management, according to Bloomberg.

As Republican politicians have railed against the notion of ESG factors as investment considerations, small asset managers have brought more than two dozen anti-ESG funds to market over roughly a year.

So far, most of those products have been slow to attract money, although a total of nearly $537 million has flowed into such funds this year through August, according to data from Morningstar Direct. More than half of that went into just two ETFs: the Strive Emerging Markets Ex-China ETF, which pulled in over $149 million; and the Strive 500 ETF, which raked in $143.6 million, the data show. As of August, there was a total of about $2.5 billion in all U.S. mutual funds and ETFs that Morningstar categorizes as anti-ESG.

“It’s not clear that the market is backing this as a long-term trend,” said Alyssa Stankiewicz, associate director of sustainability research for Morningstar Research Services. “Strive seems to be driving most of the narrative.”

That company, which has launched nearly a dozen products, was started by Vivek Ramaswamy, who has since stepped down and is vying for the Republican Party’s presidential nomination.

Notably, three of the 27 funds Morningstar identified in a paper about anti-ESG funds earlier this year have shuttered, a reflection of their struggle to gain assets, Stankiewicz said.

But Tuttle said he sees potential demand for anti-socially conscious strategies amid the wave of outrage that some conservatives have directed at companies such as Anheuser-Busch, Target and Disney.

“You’ve got a political environment where companies feel forced to take on these [social] issues,” Tuttle said. “At the extreme end, you’ve got companies that all of a sudden do something … and you see their stock get crushed.”

While campaigns and social positions taken by companies have riled customer bases in some instances, “if you’re a shareholder in one of those companies, you’re going to be pissed off,” he said.

Last month, Tuttle announced that one of the company’s products, the Long Cramer Tracker ETF, would cease trading next Monday. The ETF, which launched alongside the Inverse Cramer Tracker ETF, had attracted $1.3 million in assets.

“I did the Cramer Long [ETF] to be nice to Jim and hoped that maybe there would be some dialogue,” Tuttle said. “When it became obvious that that wasn’t going to happen, we shut down the long.”

The company would not similarly launch opposite versions of the Inverse Socially Conscious and Self Defense Index ETFs, he said.

Despite the rising number of anti-ESG products on the market, Tuttle said he sees a spot for his firm’s planned ETFs.

“The funds that are out there right now are problematic,” he said, as some significantly reduce the universe of stocks from which they can choose.

And those that don’t, including index funds that focus on proxy voting — Strive’s model — face an uphill battle in gathering assets, he said, noting that $1 billion would be a “rounding error” for the likes of BlackRock or Vanguard.

“You look at something like Strive — they’re trying to go up against BlackRock — good luck with that,” Tuttle said.