Offering Equity Diversification While Aligning with Investors' Values

The Portfolio Managers of the Hennessy Stance ESG ETF discussed market performance in the first half of 2024, a surprising area of investment for the ETF, portfolio positioning, and their case for sustainable investing.

July 2024
  • Bill Davis
    Bill Davis
    Portfolio Manager
  • Kyle Balkissoon
    Kyle Balkissoon
    Portfolio Manager

Information about the Hennessy Stance ESG ETF (the “Fund”), a semi-transparent actively managed exchange-traded fund ("ETF") with a Portfolio Reference Basket structure:

The Fund is different from traditional ETFs. Traditional ETFs tell the public what assets they hold each day. The Fund will not. This may create additional risks for your investment. For example:

  • You may have to pay more money to trade the Fund’s shares. The Fund will provide less information to traders, who tend to charge more for trades when they have less information.
  • The price you pay to buy Fund shares on an exchange may not match the value of the fund’s portfolio. The same is true when you sell shares. These price differences may be greater for the Fund compared to other ETFs because it provides less information to traders.
  • These additional risks may be even greater in bad or uncertain market conditions.
  • The Fund will publish on its website each day a “Portfolio Reference Basket” designed to help trading in shares of the Fund. While the Portfolio Reference Basket includes all the names of the Fund’s holdings, it is not the Fund’s actual portfolio.

The differences between the Fund and other ETFs may also have advantages. By keeping certain information about the Fund portfolio secret, the Fund may face less risk that other traders can predict or copy its investment strategy. This may improve the Fund’s performance. If other traders are able to copy or predict the Fund’s investment strategy, however, this may hurt the Fund’s performance.

For additional information regarding the unique attributes and risks of the Fund, see the Prospectus and SAI.

Would you please discuss the S&P 500 Index’s year-to-date performance through June 30, 2024?

Market performance has been a continuation of 2023, where very few stocks have driven returns, making it a challenging environment for active investors to outperform their benchmarks. In 2023, seven stocks accounted for 90% of the S&P 500’s performance of the S&P 500 for a significant portion of the year. In 2024 through June, five stocks (NVIDIA, Broadcom, Apple, Microsoft and Google) accounted for 101% of the performance of the S&P 500. Significantly, the quarterly return spread between the S&P 500 and the S&P Equal Weight Index was among the highest it’s been in 20 years.

The market has been primarily driven by investors’ enthusiasm for companies with exposure to the development of artificial intelligence (AI). We believe it is likely that the market will begin to revert to an environment where there will be more breadth and more company participation.

What sectors or themes would surprise investors to be ESG-friendly? 

We believe there are certain companies in market segments not generally thought of as ESG-friendly sectors, yet they are critical to the success of traditional ESG-friendly companies. For example, with the energy transition to a lower carbon economy, companies that mine copper, cobalt and other non-ferrous metals required for car batteries, wind turbines, solar and other modern technology are essential.

One company that stands to benefit from the transition to cleaner energy is copper producer Freeport McMoRan. We believe the company is well run and has a tremendous interest in protecting the environmental and human capital. Some of its mining is on tribal land with a significant level of human capital deployed. As a result, management believes it is imperative to be outstanding citizens to continue to renew its license and operate. 

How is the portfolio positioned after rebalancing at the end of the second quarter?

The Hennessy Stance ESG ETF actively invests in companies that score well on ESG metrics and are most likely to outperform both in absolute and risk-adjusted returns. As always, the ETF avoids companies with exposure to tobacco, guns and ammunition, and fossil fuel industry.

More stocks met this criteria at the end of the second quarter, and as a result, the ETF holds 45 companies diversified across 8 sectors as of June 30, 2024. In a current market where only a few AI stocks have dominated returns, the ETF provides diversification to companies and aligns with investors’ values.

What is your investment case for sustainable investing over the next year or so?

We believe sustainable investing is a proxy for finding better managed companies that can deliver greater value to shareholders by being good stewards of the environment, drive employee engagement, and excel as corporate citizens in their communities.

We believe ESG has generally been politicized but is not going away as too many large institutional investors intend to invest their clients’ funds in a fiduciary manner. While fewer companies may be publicly identifying their actions as ESG-friendly, we believe many companies will continue to decarbonize because it provides the potential for mitigating risk, attracting better employees, charging premium pricing and growing revenues sustainably.

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Hennessy Funds
7250 Redwood Boulevard, Suite 200
 Novato, CA 94945
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The Fund's investment objectives, risks, charges, and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company. Please read it carefully before investing. A hard copy of the prospectus can be requested by calling 1-800-966-4354.

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted and can be found here. Neither forward earnings nor earnings growth is a measure of a fund’s future performance.

ETFs are subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of an ETF’s shares may trade at a premium or discount to its net asset value, an active secondary trading market may not develop or be maintained, or trading may be halted by the exchange in which they trade, which may impact an ETF's ability to sell its shares. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the ETF. Brokerage commissions will reduce returns.

ESG investing risk is the risk stemming from the Environmental, Social, and Governance factors that the Fund applies in selecting securities. The Fund intends to invest in companies with measurable high ESG ratings relative to their sector peers, and screen out particular companies that do not meet its ESG criteria. This may affect the Fund’s exposure to certain companies or industries and cause the Fund to forego certain investment opportunities. The Fund’s returns may be lower than other funds that do not seek to invest in companies based on ESG ratings. The Fund seeks to pursue its investment objective by using proprietary models that incorporate quantitative analysis. There is no guarantee that the Portfolio Managers’ use of these models will result in effective investment decisions for the Fund. From time to time, the Fund may concentrate its investments in one or more industry sectors. The Fund is currently substantially invested in the Consumer Discretionary and Health Care sectors and its performance is therefore tied closely to, and affected by, developments in these industries.

The Portfolio Reference Basket is not expected to represent the actual portfolio of the Fund because the weightings of the securities in the Portfolio Reference Basket generally are different from the weightings of the securities in the actual portfolio.

Guardrail Amount: 10%

The Guardrail Amount is the maximum deviation between the weightings of the specific securities in the Portfolio Reference Basket and the weightings of those specific securities in the Actual Portfolio, as well as between the weighting of the respective cash positions. The Guardrail Amount is intended to ensure that no individual security in the Portfolio Reference Basket will be overweighted or underweighted by more than the publicly disclosed percentage when compared to the actual weighting of each security within the Actual Portfolio as of the beginning of each trading day. The Guardrail Amount is designed to help investors evaluate the risk of tracking error, which is the degree to which the performance of the Portfolio Reference Basket deviates from the performance of the Actual Portfolio.

Although the Portfolio Reference Basket is intended to provide investors with enough information to allow for an effective arbitrage mechanism that will keep the market price of the Fund at or close to the underlying NAV per share of the Fund, there is a risk (which may increase during periods of market disruption or volatility) that market prices will vary significantly from the underlying NAV of the Fund.

The Fund's bid-ask spreads and premiums/discounts may be larger than those for traditional ETFs due to the lack of transparency, thus making trading in the Fund's shares more expensive.

Diversification does not eliminate the risk of experiencing investment loss.

Market participants may attempt to reverse engineer the Fund’s trading strategy, which, if successful, could increase opportunities for trading practices that may disadvantage the Fund and its shareholders.

The Fund is subject to certain other risks, including but not limited to, equity securities risk, large-capitalization risk, market risk, active strategy risk, and market trading risk. Investing involves risk, including possible loss of principal. Gains or losses on a single stock may have a greater impact on the Fund. For these and other reasons, there is no guarantee the Fund will achieve its stated objective.

Distribution Rate reflects the investment income per share during the last 12 months divided by the share price at the end of the period, expressed as an annual percentage rate. It is calculated by annualizing the Fund’s most recent distribution. The annualized dividend yield may not reflect the actual yield an investor would receive. 30-Day SEC Yield is a standardized yield computed by dividing the net investment income per share earned during the past 30-day period by the share price at the end of the period, expressed as an annual percentage rate. The 30-Day SEC Yield should be regarded as an estimate of the Fund’s rate of recent investment income, and it may not equal the Fund’s actual distribution rate. Past yields are no guarantee of future yields.

Glossary of Terms contains definitions and additional information.



Opinions expressed are subject to change at any time, are not guaranteed, and should not be considered investment advice.

The Hennessy Funds are offered only to United States residents, and information on this web site is intended only for such persons. Nothing on this web site should be considered a solicitation to buy or an offer to sell shares of any Hennessy Fund in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction.

Quasar Distributors, LLC, Distributor.

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