This has become a time of so-called woke and anti-woke investment products, including any number of flavors of "ESG" investing purporting to put pressure on company share prices to either reward or punish company behavior.
In other words, we're in a new generation's version of shareholder activism. It's like the young man I recently helped change a tire on his car who was trying to raise his car by putting the jack under the passenger side floor pan and who had already not just loosened but completely removed three lug nuts before jacking up the car: That's not how it's done.
Shareholder activism is achieved by wresting control of a company's board and, depending on your point of view, either bending it to your will or making it to see the value in your position. We've seen shareholder activism in the form of billionaires muscling their way onto company boards for a while now in the form of Carl Icahn, Bill Ackman, and others. Exchange-traded fund issuers, especially those with young and small funds, just don't have that kind of clout. There is at least one exception though, a relatively new ETF issuer named Engine No.1
Engine No. 1: VOTE, SUPP
While a new issuer with a small asset base, this firm so far has been able to step away from the need to deploy huge amounts of capital to affect change at publicly traded companies. How? By deploying its ETF shareholder capital while also preparing compelling arguments and lobbying existing major shareholders to push for change at company boards like it did with Exxon Mobil (XOM) back in 2021 and continues to do with companies like General Motors (GM) and Tesla (TSLA) .
At just under $517 million in assets under management, 80% of which is held in the firm's flagship Engine No.1 Transform 500 ETF (VOTE) this is a firm that is growing. Adding to that growth is their latest fund, the Engine No. 1 Supply Chain ETF (SUPP) launched on Feb. 14 with a 75-basis point (bps) expense ratio. Doing some quick math will let you know that 75 bps means a shareholder with $1,000 invested over a calendar year will pay $7.50 in fees over that period. So, what is SUPP all about? Let's take a look.
SUPP
If we weren't aware of it before the pandemic, one of the most vital parts of our economy is the global network of supply chains. These networks deliver raw materials to component manufacturers, components to finish manufacturers and assemblers, finished goods to intermediaries, and those same goods to retailers or end users. What happened during the pandemic is that the robustness of these networks was severely tested and for the most part, they seemed to fail at one point or another.
SUPP is described as "a high-conviction, actively managed fund." Another attribute is that it is concentrated. This is not just some marketing spin. The portfolio currently holds just 27 equity positions. It has exposure to raw materials names like Martin Marietta Materials (MLM) , Vulcan Materials (VMC) , and Capstone Copper (Canadian ticker CS), railways like Canadian Pacific (CP) and Canadian National (CNI) , and environmental management companies like Advantage Drainage Systems (WMS) and Ferguson PLC (FERG) .
The rest of the portfolio is made up of a broad range of what I would call picks-and-shovel types of companies that seem to be positioned to take advantage of both the push to reinvent supply chain structures and the global push of governments to fund this transformation.
These names seem to me to be the companies that will help dictate how the next iteration of supply chain technology is developed. Having Engine No. 1 on board, especially with its front and center declaration of its proxy voting guidelines leads me to believe that it will continue to practice its effective brand of shareholder activism.
Wrap It Up
SUPP isn't the first infrastructure-focused fund out there, but it does seem to be the first that is squarely focused on supply chain redevelopment. This uniquely targeted exposure coupled with the already demonstrated ability of Engine No. 1 to affect real change in company behavior makes me a fan of both the issuer and the fund.
(VMC is a holding in the Action Alerts PLUS member club . Want to be alerted before AAP buys or sells stocks? Learn more now. )
