Hennessy Advisors picks up more assets to support new ESG ETF

Hennessy Advisors is buying its way further into the sustainable fund business and last week announced a deal to acquire assets from Community Capital Management.

The Novato, California-based acquirer will fold the $70 million of assets in the Community Capital Management Core Impact Equity and Small/Mid-Cap Impact Value funds into the recently renamed Hennessy Stance ESG ETF.

The successor fund, which is Hennessy’s sole ETF, is the result of the firm’s recent acquisition of the Stance Equity ESG Large Cap Core ETF, which represents $46 million.

“The CCM equity funds are a natural fit into our ETF, which seeks to align investors' capital with their values while striving to outperform the overall market," Hennessy CEO Neil Hennessy said in an announcement of the deal. "We are committed to a smooth transition for the CCM shareholders."

The CCM Core Impact Equity Fund was previously known as the Quaker Impact Growth Fund. It currently represents $53 million in assets and has net fees of 184 basis points for institutional shares. The CCM Small/Mid-Cap Impact Value Fund, which had also been under the Quaker brand name, represents about $16 million and charges 130 bps for institutional shares.

Both of those funds have significantly lagged their benchmarks in returns over one year, three years and year-to-date in 2023, according to CCM’s site.

However, the two funds are the only equity mutual funds in CCM’s line, which is a major reason why the company is selling them.

“We primarily provide fixed-income portfolios that include impact and environmental, social and governance factors. We are confident that we've found the right home for our equity mutual fund shareholders with the Hennessy Stance ESG ETF, which has delivered strong returns coupled with social consciousness," CCM CEO Alyssa Greenspan said in the announcement.  "We believe the acquisition will benefit our equity fund shareholders.”

The acquisition is attractive to Hennessy because of similarities between the funds, such as their focuses on long-term value, said Terry Nilsen, chief operating officer and secretary for Hennessy Advisors.

Hennessy could consider further fund acquisitions to build up the Stance ETF if the circumstances are right and the acquired funds are a good fit, Nilsen said. Acquiring fund assets, including deals to work with the firm selling the assets as a subadvisor going forward, is part of Hennessy’s business model, she noted. That was the case with Stance.

“More attractive to us [than the ESG overlay] was the way they invest money,” Nilsen said, citing that firm’s use of fundamentals and a proprietary AI model.

The ETF is subadvised by Stance, with portfolio managers Bill Davis and Kyle Balkissoon having managed the predecessor ETF since its inception in 2021. It has a net expense ratio of 85 bps.

At Hennessy, the recently launched Stance ESG ETF is the only ’40 Act product that focuses on sustainability, although the company also offers a mutual fund that's focused on the energy transition.

“We’re not trying to be everything for everyone,” Nilsen said. “There are people who don’t want ESG and there are some who do.”