Last week, Philippe Cousteau Jr., of the legendary Cousteau family, helped to launch a new approach to socially responsible investing, (SRI): the Global Echo ETF, aptly tickered GIVE. It’s the first actively managed exchange-traded fund with an SRI focus and it comes with a funding twist: 40 basis points on total assets go directly to the Global Echo Foundation, a 501 (c)(3) charitable organization headed up by Cousteau Jr.. This kind of direct funding drawn from a security’s management fee has never been tried before and could add up to a lot of dollars for the foundation if the ETF attracts investor interest. Cousteau Jr.’s celebrity backing certainly doesn’t hurt the effort: he’s a well-connected social entrepreneur and environmental advocate who hosts a show about environmental issues on CNN International.
That said, this ETF ain’t cheap. The total fee is 170 basis points, which includes 20 basis points for the underlying ETFs in the alternative portfolio. (Cousteau and AdvisorShares say that this management fee could come down as assets accumulate.) The average actively managed ETF charges about 75 basis points, according to Robert Goldsborough, a Morningstar ETF analyst.
“Who knows how successful GIVE will be in terms of attracting assets or performance,” says Goldsborough. He worries that some investors will be turned off by the direct contribution from the management fee to Global Echo, and says in any case, SRI funds in general are not attracting a lot of assets of late. “It’s unusual because there is a notion out there that you get a tax benefit to foundation if you’re making your own contribution. If you make the contribution from an ETF [management fee] you don’t get that benefit. I could imagine some investors not adoring that aspect of it. On the other hand, the Global Echo Foundation has some very interesting aims. It’s possible it could be a nice income stream for a foundation. Is it core to what ETF or even SRI investors are looking for? That’s a little less clear.”
Of course, Cousteau and AdvisorShares make the point that GIVE is less SRI and more SI, for "sustainable investing."
With a generous purse of $25 million in seed money, GIVE traded for the first time Thursday and represents a partnership between Cousteau Jr. and AdvisorShares, a rapidly growing provider of actively managed ETFs with $650 million under management. GIVE aims to solve a couple of problems at once: the perception that SRI investing does not generate good returns, and the difficulty of raising money for philanthropy in an uncertain economic environment.
AdvisorShares says it chose managers with long track records and strong risk-adjusted returns, while the actively managed structure allows for diversification and hedging. The portfolio is managed by four subadvisors, including two equity managers, Baldwin Brothers and Reynders, McVeigh Capital Management, which invest in companies like Apple, Google or Starbucks that are deemed to run their businesses in a sustainable manner; one bond manager, Community Capital Management, which invests in municipality offerings meant to fund projects like low-income housing; and one alternative manager, First Affirmative Financial Network, that invests in SRI ETFs and hedges out market exposure.
But Goldsborough says AdvisorShares has a history of selecting subadvisors with low profiles and mixed performance. Will others follow their lead with additional SRI ETFs? Goldsborough isn’t betting on it. “It’s possible. Again, the number of assets going toward SRI investing period, I don’t know how big it is. There isn’t a sense that those asset levels are growing. ETF product providers, the new products they’ve been launching over the last year or two, have tended to be responsible to where investor interest is, and that’s been concentrated in fixed income and yield generating products, not so much in SRI products.” Will interest in SI be greater? That remains to be seen.
As for philanthropy funding, on average, charitable organizations spend 60 percent of their dollars raising money, according to Cousteau, but this ETF will give Global Echo an immediate and ongoing source of funding. Echo’s aim is to give away more than 80 percent of its money and it will focus on three primary causes: social issues impacting women and children, environmental conservation and social entrepreneurship.
The idea for the partnership came into being in the wake of the global financial crisis, as Cousteau Jr. found he was having a hell of a time raising money for philanthrophic causes. A friend asked him if he had ever considered trying to tap financial markets. He hadn’t. The idea stuck with him and after about a year and a half of research, he stumbled upon AdvisorShares. It took them another year and a half to come up with a structure and strategy that fit and to launch the product.
Cousteau said he immediately liked the idea of using an ETF because of its accessibility and transparency. “The legacy of my family has always been about innovation and helping people understand their power to change the world, so I didn’t want to do anything that was hedge-fund based that would seem too elitist,” said Cousteau. “ETFs are transparent and they’re easy for anyone to invest in, be it an institution or an accredited investor or the average Joe on the street.”