‘Stand up to Donald Trump’ blends portfolios with politics
Reflecting the polarized political climate of the country, one impact investing robo advisor says it has a new screen to satisfy client demand: Avoiding companies that financially support President Trump.
“We’re coming up to the midterm elections, and transparency around political spending and corporate donations are a growing theme,” says OpenInvest chief strategy officer Joshua Levin. “Ranking those money flows is extremely important to people.”
The San Francisco-based startup says it screens data sets and industry groups to ensure no investments in companies eschewed by traditional environmental, social and governance investing screens, such as fossil fuels, arms, deforestation and tobacco — but added the notable political filter after clients requested it.
Motif, another Bay Area-based digital investment firm, also was inspired by Trump’s election to come out with a values-based portfolio tool last year. "We wanted to build a product of our times," said Motif CEO Hardeep Walia.
But OpenInvest is unique in specifically targeting companies donating to Trump, a filter built through “various news sources used to identify pro- or anti-Trump companies.”
The screen includes "companies whose current executives have openly spoken out against the president, and who proactively withdrew from Trump’s business councils after violent demonstrations last year in Charlottesville, Virginia. It largely excludes companies who chose not to withdraw from the councils before they were dissolved," according to the startup.
The screen "also excludes retailers who are boycotted by the #GrabYourWallet campaign for selling products that bear the Trump name." Clients also have the option to include or drop individual companies from their portfolios.
On its website, a specific page titled, “Stand up to Donald Trump,” reads: “President Trump has a history of misogyny, racism, disbelief in proven climate science, disregard for veterans and the disabled, and a troublesome amount of personal business interests. This screen is for those who believe the above issues may interfere with his judgment as Commander-in-Chief and would like to take a stand.”
Levin insists his startup, which currently manages $5.8 million and recently raised $10.6 million in its Series A funding round from prominent venture capital firm Andreessen Horowitz, is neither anti-Republican nor anti-Democrat.
“We’re coming up to the midterm elections, and transparency around political spending and corporate donations are a growing theme."
"We went back and forth on the question of whether or not to get so political," Levin says, who co-founded the firm in 2015. "But we had set our clear ethical red lines when we launched the company, which was that we would never support hate, discrimination, or violence.
"After deep reflection, we decided Trump had crossed some of those red lines. So we looked into whether we could pull the data for the screen, and we could. When we launched the screen, we received a highly positive reception that led to significant client acquisition, as well.”
It’s the sort of marketing move that would get the approval of any seasoned political operative, says Travis Briggs, CEO of RoboGlobal, an index and research firm focused on automation and investing.
“Every year, the creativity going on in ESG land is only increasing as more and more investors come on board,” Briggs says. “That’s the thing about ESG: Everyone has a different definition, so there’s never going to be a universally agreed upon set of rules. It’s always going to be subjective.”
The offer plugs into significant discontent with the Trump administration, says Tim Welsh, president of industry consulting firm Nexus Strategy.
The quant crowd is justifiably concerned by the lack of objective statistics available.
“I think this investing theme is brilliant, it will get traction and capitalizes on the country’s mood,” Welsh says, noting it dovetails with the anti-establishment ethos of digital-first firms.
Welsh wondered, though, if the investment theme was better wrapped in an ETF than a robo platform.
Celent’s head of wealth management research, Will Trout, had his doubts about the alpha-generating prospects of the investment theme. Advisors have long insisted that portfolios built on narrow factors like political beliefs will likely underperform portfolios that are broad based and low cost.
“All investments decisions are inherently political, in that the outcomes of the bets placed by the investor will be influenced by fiscal, monetary, social and other forms of policy,” Trout says. “Making investments decisions around very specific politics-based screens, on the other hand, seems to me akin to using a chainsaw to cut string. The mechanism is inexact if not overkill — what is the supposed correlation between this lens and portfolio performance? And given laws of unexpected consequences, it may as likely benefit as harm those companies that donate to Trump. Has anyone tried to quantify the potential benefits to the investor, either in terms of upside or downside? It’s just not possible.”
From a marketing perspective, the premise sounds good, says Grant Easterbook, CEO of digital 401(k) provider Dream Forward.
"But you can get real deep in the weeds," he says. "Does his cameo appearance in 'The Little Rascals' — a 1994 film done by Universal, and its majority stakeholder is Comcast — mean you should underweight Comcast stock? If you read Trump's biography, you could probably find countless examples along these lines. There's a lot of discretion here when it comes to any kind of socially responsible fund," Easterbrook says. "Not that there's anything necessarily wrong with that, consumers just have to understand that."