Stakeholder capitalism is evolving, and it’s gaining momentum in the landscape. Good news: Investors don’t have to wait to access this concept via exchange traded funds.
The ARK Transparency ETF (CTRU), which debuted last December, offers investors an avenue to stakeholder capitalism. At its core, stakeholder capitalism enhances both old guard capitalism and environmental, social, and governance (ESG) investing by focusing on improving outcomes for a wider array of participants.
“This evolution in how we think about market economies has sparked interest in sustainable investing as a way to incorporate positive stakeholder impact across businesses,” according to BlackRock research. “Investor flows and company commitments have followed, with sustainable assets exceeding $4 trillion globally and firms increasingly acknowledging the importance of social and environmental factors to their business.”
CTRU is getting in on the act, as it’s off to a solid start with nearly $19 million in assets under management. The newest addition to the ARK Investment Management stable of ETFs follows the Transparency Index. As its name implies, the benchmark focuses on transparent companies, and that methodology can jibe with stakeholder capitalism.
“We found sustainability and profitability to be strongly linked, providing a clearer view of company characteristics and opportunities alongside traditional financial metrics,” adds BlackRock. “Sustainability has since become ingrained in our investment approach for its ability to achieve better outcomes for both shareholders and stakeholders – solving for what we call the double bottom line.”
CTRU fits in the stakeholder capitalism conversation because companies with favorable transparency traits are less likely to commit environmental offenses, meaning that they likely have strong sustainability characteristics. Additionally, CTRU member firms are less likely to commit financial fraud, which is an important trait because corporate financial fraud can harm a variety of stakeholders, not just equity investors.
CTRU allocates almost 69% of its weight to technology and consumer discretionary stocks, but that sector-level concentration risk is tempered by the fact that none of CTRU’s holdings exceed a weight of 1.41%.
Going forward, CTRU could be a long-term winner because companies that ace the sustainability test can deliver better outcomes for shareholders while contributing to the world around them.
“Sustainable insights help uncover potential indicators of company success that drive durable value creation,” concludes BlackRock. “The challenge investors face is ensuring those insights are validated and tied to material results. Common ESG metrics and standards often lack substantiated evidence of business impact or fail to demonstrate a link with key stakeholder groups and social issues. As a result, investors may not be effectively capturing the intended benefits.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.