When an advisor is tasked by a client to suggest investments that could take advantage of the United States’ increased military spending, the default play might be to offer alternatives in aerospace and defense exchange-traded funds (ETFs), but what about an option that directly benefits those who served our country? Such is the case for the Pacer Military Times Best Employers ETF (NasdaqGM: VETS).
In April, Pacer ETFs announced VETS would join a growing list of funds that now boasts 15, which deftly corner various aspects of the capital markets. However, VETS is truly unique–it seeks to track the total return performance of the Military Times Best for VETS Index, which is calculated by Wilshire and owned and developed by VETS Indexes, LLC.
However, here is where VETS discerns itself from the growing masses of thematic ETFs–Pacer will also donate 10% of its management fees earned from VETS to veteran-related charities.
“Pacer ETFs strongly believes that America’s military and veterans exemplify the best part of our country. Companies that treat veterans well should be recognized for their care and support of our best and brightest. Doing so through our new ETF is a unique and wonderful way to spotlight these companies, while also helping charities that support our nation’s heroes,” says Sean O’Hara, President of Pacer ETFs.
An ESG Investment Opportunity?
Because of the charitable component attached to VETS, it might be easy for investors to categorize the fund as part of the nascent, but growing environmental, social and governance (ESG) investing umbrella, but O’Hara begs to differ. Though VETS operates within the capital markets, the fund screens for companies that operate for purposes beyond profitability.
“While there are some who view this ETF as one that falls under the ESG umbrella, we consider this impact investing,” said O’Hara. “These are companies that make a positive impact on the veteran’s lives.”
Although the idea of socially responsible ETFs is not relatively new, it’s still struggling to break into the mainstream, particularly at time when the markets were at fever pitch and the major indexes were nearing record highs prior to the mass of sell-offs in October. The focus of impact/ESG investing may have taken a back seat to the profit-fueled bull market, but maybe October’s bout of volatility is an opportunity for investors to rethink their allocation of capital going forward.
According to Schwab’s ETF Investor Study that extrapolated data from 1,500 ETF investors between the end April and the middle of May. While 13% of the ETF investors were oblivious to the idea of SRI/ESG investing, the majority were aware of the concept–41%.
Despite this, only 14% have actual investments in ESG incorporated into their portfolios. Another 17% of the study have in-depth knowledge of ESG investing, but no tangible investments in the area.
Now is the time to think about VETS as the impact/ESG investing space is eyeing expansion while the markets are at an inflection point.