The U.S. ESG and climate backlash of the last few years resulted in a scaleback for many investment strategies focused on such initiatives. One fund, the TCW Transform 500 ETF (VOTE ), remains afloat. The fund offers investors passive ownership alongside active engagement bundled in one convenient, cheap strategy.
Remember Engine No. 1? The then scrappy activist investment firm that successfully ran a campaign to oust three ExxonMobil board members in 2021 for their refusal to acknowledge climate change and emissions? VOTE, previously the Engine No. 1 Transform 500 ETF, is their brainchild.
Launched at a time when ESG funds still enjoyed some support, TCW Transform 500 ETF (VOTE ) managed to weather the politicization and ESG backlash of the last year and a half. In October 2023, TCW acquired the entire ETF business and infrastructure from Engine No. 1.
When many funds of similar strategy shuttered, VOTE persisted. It’s a fund that’s almost revolutionary in its simplicity — a simplicity that holds appeal to a wide swathe of investment priorities. From climate-minded to return-oriented investors, VOTE offers something for everyone.
VOTE Combines Passive Exposure With Active Engagement
The fund offers passive exposure to large-cap U.S. equities by seeking to track the Morningstar US Large Cap Select Index. It then utilizes the shares invested in companies owned to engage with management and the boards of companies. This engagement focuses on accountability, transparency, and transformational or accelerated change to create better long-term value for shareholders. These changes include aligning with the climate transition, community investments, ensuring workforce safety and diversity, and more.
The fund engages via ongoing dialogs with management and boards as well as through its use of proxy voting.
“There shouldn’t be a trade-off between investing for the long-term and holding companies accountable,” according to VOTE’s website.
VOTE carries strong appeal because while pursuing its engagement objective, it doesn’t sacrifice returns. Over the last 12 months, VOTE generated total returns of 27.39% compared to the SPDR 500 ETF Trust (SPY)’s 27.01% as of 06/05/2024.
Year-to-date, VOTE currently lags SPY by a small margin, at 12.63% total returns to SPY’s 12.84%.
The New Face of Investing
The fund offers investors the chance to capture equity performance without sacrificing returns. A management fee of just 0.05% keeps the fund competitive with larger S&P 500 ETF peers. And for such a nominal fee, investors enjoy benchmark exposure alongside active engagement working to drive change for the better. Whether you define that better in terms of returns, long-term investment value, or sustainability and impact is up to you.
For younger generations like millennials, set to inherit the largest investment nest egg ever at $90 trillion alongside an increasing climate crisis, impact investing matters. As of April 2022, 61% of millennial investors reported including impact investing in their portfolios according to Fidelity Charitable. Even more telling, 62% reported they believed impact investing was a better driver of long-term positive change over philanthropy.
Whichever aspect appeals, VOTE continues to change the face of passive investing. As younger generations with different, climate-focused priorities step to the fore, funds like VOTE may prove increasingly popular.
Call me a stubborn optimist, but at the end of the day, I like to imagine most people wouldn’t pass up the chance to do good if given the opportunity. Particularly when that opportunity comes at little to no cost to themselves. VOTE’s that ideal in fund form and celebrates its third anniversary this month.
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