Strive AM warns of transition risk in documentation for anti-ESG energy ETF

Vivek Ramaswamy and Anson Frericks' anti-ESG fund house warns fossil firms could be made obsolete by technological advances as it launches oil-friendly ETF.

Strive Asset Management, the anti-ESG investment house co-founded by Vivek Ramaswamy and Anson Frericks, has launched an energy sector ETF that promises to push back against climate activism at big firms – but the fund documentation contains warnings about transition risk.

The Strive US Energy ETF, which the firm launched with the ticker DRLL, tracks a Solactive Index investing in US energy companies, mainly in the oil sector.

However, the fund factsheet carries the following warning on ESG risk:

“ESG stands for environmental, social and governance, and refers to the three key factors when measuring the sustainability and ethical impact of an investment in a business or company. Companies in the fossil fuel and traditional energy sectors may be vulnerable to potential obsolescence due to technological advances and global competition. A company’s profitability may also be affected by pricing pressure, government regulation, environmental factors and unpredictable changes in consumer demand.”

A section in the fund prospectus relating to energy sector risk also notes that securities may be affected by increased environmental regulation and that “issuers in the energy sector may also be impacted by changing investor and consumer preferences arising from the sector’s potential exposure to sustainability and environmental concerns”.

Responsible Investor queried the firm on its approach to transition risk and whether the given warning conflicted with its stated desire to “let oil companies be great oil companies”. In response, its head of product and investments, Matt Cole, said the firm’s mission “is to represent the voices of everyday citizens in corporate America by guiding companies to focus solely on excellence over all other agendas”.

“Disclosures are required by regulators to express broad concerns applicable to the industry, and not all of the disclosures relate to Strive’s particular views or approach to shareholder engagement (and instead reflect broad norms for disclosures by index funds),” he added.

“The bottom line is that no investor knows for sure but any investor has to make a bet on where they think the market’s going. Our bet is that oil and gas is going to be around much longer than might be the consensus in the asset management industry currently.”

There appears to have been some confusion over whether transition risk was an issue for investors in the fund, as the fact sheet was amended on Tuesday to remove the wording. It was subsequently restored earlier today. Strive declined to comment on the changes.

The ETF’s main holdings are in Exxon and Chevron, which account for 21.3 percent and 15.9 percent, respectively, with oil and gas companies making up 76.8 percent of total holdings. Solar firms form 0.3 percent, according to its factsheet. The factsheet for the Solactive index shows a 33.1 percent return in the year to date.

Cole, a former CalPERS portfolio manager, said that Strive had five products under US Securities and Exchange Commission registration and the ETF had already traded $23 million of shares after two hours today, following $27 million of trading on Tuesday.

Competing with the big asset managers is “a tall order”, he said, but the firm thinks the majority of Americans agree with its “voice” and that they will “find us compelling” as an investment option.

The firm was set up to provide a counter voice to ESG in the investment markets, which co-founder Ramaswamy calls “one of the defining threats to both capitalism and democracy”.

He told Fox News that the firm would tell companies in the energy sector that they should be “doing whatever allows you to be most profitable and successful over the long run without regard to somebody else’s political agenda”. It secured around $20 million in funding, with investments from Paypal co-founder Peter Thiel and Bill Ackman, founder of Pershing Square Capital Management, among others.

Strive is not a lone player in the anti-ESG backlash. In the US, there has been a wave of legislation and sentiment attempting to restrict the use of it in states such as TexasWest VirginiaIdaho and Utah.