Aligning Investors' Values through ESG Investing

With the increased demand and proliferation of Environmental, Social and Governance (ESG) investments, we believe it is important to evaluate investment choices and participate in a growing trend where Financial Advisors can align investments and values for their clients.  

January 2023
  • 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.

Key Takeaways

»    A growing number of investors show a pronounced interest for ESG investing, with Millennials representing the best opportunity among generations.
»    Educating older investors is important given the great wealth transfer.
»    Global ESG assets may surpass $50 trillion in 2025—a 40-plus percentage increase since 2020.
»    Values-aligned investing combines a systematic, fundamental research process with companies that resonate with an investor’s ideals.

Growth of ESG Adoption – Millennials Lead the Pack

Significant investor groups that represent future growth show a pronounced interest for ESG investing, which today’s Financial Advisors cannot ignore. Millennial investors present the best opportunity for growth of ESG adoption. By gender, females express the strongest interest in the topic. Female decision-makers are an influential and growing segment across generational groups, and their interest in ESG-related topics provides a clear opportunity for engagement.   

Importance of ESG to Different Demographics

Older investors, who possess the highest percentage of wealth, show marginal interest in the topic. These older cohorts tend to have a greater focus on protecting assets as they approach or enter the decumulation phase of their investing arc. Though these issues appear to dilute the potential of ESG among older investors, it is possible that ESG investing may provide at least a foundation to solve for these circumstances.  

Educating older investors is important given the great wealth transfer that is underway. An estimated $30+ trillion in assets will shift from the older generation to Generation X and Millennials, who are more inclined to consider ESG. As noted, females are a growing segment of decision-makers, and based on longevity data this is likely to intensify, as the life expectancy of American women is five years longer than men. Assets will likely transfer to women prior to passing on to the younger generations. 

ESG Market Overview: Assets and Net Flows 

In January 2022, Bloomberg Intelligence posited that global ESG assets may surpass $50 trillion in 2025, which would reflect a 40-plus percentage increase in assets since 2020. The U.S. intermediary market, reflected in mutual fund and ETF assets, has experienced growth in ESG though at lower rates. While recent headlines and market volatility have tempered flows and enthusiasm regarding the topic of ESG/Sustainability, the long-term prospects and trends clearly provide tailwinds for continued growth.  

Where to Invest: The Value in Values-Aligned Investing

Values-aligned investing combines a systematic, fundamental research process with companies that resonate with an investor’s ideals. This approach presents an opportunity to individualize the investment approach in an environment where personalization is being increasingly sought after. In fact, 37% of Advisors believe it is critical or very important to be able to customize solutions to their clients’ ESG preferences, according to a FUSE Research/ WealthManagement.com survey of Advisors.

Importantly, this approach to investing does not supplant the traditional, in-depth investment process applied by active managers; rather, it complements the process with additional elements of criteria and considerations when researching potential companies and constructing portfolios.  

Successful application of values-aligned investing requires not only a proven, repeatable research process for sector and security evaluation, but also an integrated method for understanding and analyzing the values-oriented issues and how they may impact or enhance portfolio construction. Simple exclusionary screens, in our view, do not provide for the type of investing being discussed. While some industries may be avoided completely, the application of this approach occurs at the individual security level. This ensures that all opportunities are explored, and then only those that fit the appropriate profile are selected. This process helps to adhere to principals while also focusing on returns.

Risk mitigation is a topic of importance to most investors, regardless of age and wealth. While strong ESG adherence may be an indicator of a less risky investment, a portfolio optimization process to reduce risk is optimal to protect assets for all investors.

Opportunities to Participate

The Hennessy Stance ESG ETF provides an opportunity to invest in an actively managed strategy, utilizing a rules-based methodology, proprietary artificial intelligence (AI) model and portfolio optimization in an effort to minimize risk and maximize diversification.

Contact Us
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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