Index Bets on a Path to Higher Returns With Gay-Friendly Firms

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(Bloomberg) -- A California firm is betting that public companies supported by gay people will outperform the market.

LGBTQ Loyalty Holdings Inc. on Wednesday is launching an index comprised of 100 companies that support equality for lesbian, gay, bisexual, transgender and queer people -- and which has better returns than the S&P 500. Companies listed in the new index come, in part, from the results of a poll asking people in the U.S. who identify as LGBTQ which companies they want included.

While there are other stock indexes of companies focused on rights for gay people, the LGBTQ100 ESG Index is the first environmental, social and governance benchmark to seek constituent input for its makeup, according to West Hollywood-based LGBTQ Loyalty Holdings. The company worked with Harris Insights & Analytics LLC to conduct the poll. All companies in the index are S&P 500 firms with top scores from the Human Rights Campaign.

That means the index isn’t made up simply of companies with nondiscrimination policies and equitable benefits, but are also firms “LGBT people find attractive and interesting,” former U.S. Representative Barney Frank, an LGBTQ Loyalty Holdings board member, said in a telephone interview.

A focus on LGBTQ rights has become more widespread among large U.S. companies. This year, 571 firms received perfect scores from the Human Rights Campaign, up from just 13 in 2003, when the rankings were introduced. For the index, aside from the survey, a combination of quantitative methods and ESG ratings from Institutional Shareholder Services Inc. are used to select the 100 companies from the 193 S&P 500 companies with unblemished scores for benefits, culture and anti-discrimination policies.

LGBTQ Loyalty Holdings -- led by Chief Executive Officer Bobby Blair, and whose board members include Billy Bean, Major League Baseball’s ambassador for inclusion -- is now working to set up an exchange-traded fund linked to the index. The ETF, which is under review by the Securities and Exchange Commission, will cost 75 basis points, or $75 per $10,000 invested, according to the company. While the median U.S. ETF charges 48 basis points, socially focused funds tend to be more expensive.

UBS Group AG helped start a similar ETF focused on gay rights last year that charges 65 basis points, and the Alps Workplace Equality Portfolio Fund charged 75 basis points. Such investment vehicles are not always successful: The Alps fund closed on April 26 “on consideration of the fund’s inability to attract significant market interest.”

Over the past five years, the LGBTQ100 has had annualized returns of almost 12%, compared with 7.8% for the S&P 500, according to the company. Cisco Systems Inc., Amazon.com Inc., Boston Scientific Corp., Apple Inc. and Coca-Cola Co. are among the most heavily weighted companies in the index.

By buying those stocks, investors “can serve their principles without a financial sacrifice,” Frank said.

©2019 Bloomberg L.P.

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