Should I send?

They were kind enough to respond...

A major Investment Manager who offers mutual funds, exchange traded funds (ETFs), and other things has responded to my question:

How are you avoiding politics in investment management and are your PMs Fundamentals Only?

Their response was basically to tell me that they too are watching today’s U.S. elections. But I’m not satisfied with this answer. Not nearly.

I’ve penned the following response (below). Do you think I should send this? NOTE: “PM” stands for Portfolio Manager; it’s the person or team who makes the investment decisions in the funds you own.

Thank you for the prompt response.

So that we’re clear: Environmental, Social, & Governance (“ESG” for short), Diversity, Equity, & Inclusion (“DEI” for short), use of or assigning any value whatsoever to Corporate Equity Index (“CEI” for short), or any such thing is political in nature. 

Not only are each of these verifiably non-existent and fabricated for purely political reasons – virtue-signaling masquerading as doing good – they are based upon the whims and wills of a select few.  Calling these things “virtue-signaling” may sound inflammatory; however, absent any substantial response to my many years of requests for definition from any Investment Manager, I believe I’m now free to use such a term.  Most specifically, those who control the definitions of ESG, DEI, & CEI – still thoroughly un-defined for the investing public and due diligence minded – artificially decide who receives investment capital and who does not.  Each of these new terms, in other words, are allowing for the artificial pre-selection of winners and losers.  The appearance of these premises have people throughout the financial world either hiding in terror of challenging them or scratching their heads in bewilderment.

Specifically, the casting of America and the West as “inherently, systemically racist/sexist/anti-LGBTQ+/xenophobic” is allowing investment capital to flow ONLY to those scant select few companies that comply with all the vagaries of these new mandated business protocols, ostensibly because adding these new un-defined metrics is supposed to cure the ailments we supposedly have, yet aren’t apparent.  This behavior is not Free Markets, it’s not Capitalism, and it’s not even a defined or level playing field.  The proof of this is in the resulting sameness of virtually all present pooled investment products – the primary composition of a very large number of major funds today have merged into roughly homogenous sameness.  Where we once saw myriad different perspectives among PMs, today we see a vast array of different-sounding fund names all invested in roughly the exact same few names.  This exaggerates a few indexes, creates a bubble of over-valued companies (in my studied opinion), leaves people feeling they’re more diversified than they actually are, and starves vast numbers of other companies of much needed capital.

As an ERISA expert, I frequently analyze large plans.  Recently my analysis has resulted in reports of MASSIVE overlap (think: Morningstar “X-Ray”, although I don’t use that tool).  I’m finding large numbers of people in 10 to 20 funds who are primarily consolidated into scant few investments due to various managers having migrated into virtuous-looking sameness.  This is the only explanation I can find, and it’s very troubling.  The cause is political, I am certain.

It's fundamentally important that we (collectively) should ask: how is it possible that such a wide array of otherwise skilled and intelligent PMs have arrived at nearly identical, homogenous sameness in their resulting portfolios?  None worry about Price-to-Earnings, style-drift, or maybe some hidden opportunity in some different company?  Fund after fund now exhibits troubling, nearly identical sameness.

Whereas investment due diligence has forever included weighing the Fundamentals of a possible investment (EBITA, management, cash flow, R&D, patents, properties, growth, competitors, market saturation, etc.), I believe that most major managers today have allowed themselves to be lulled and bullied into a vague do-good sense that replacing Fundamentals with new metrics like ESG, DEI, CEI is a good thing.  Because I’ve been asking for definitions and proof of beneficial impact for nine years, and have yet to receive an answer (other than, “I’m afraid to talk about this because I might lose my job”), I argue that the entire movement is political.

I’ve spent the last nine years investigating this issue and now have a great deal of insight and raw data relating to the harmful impacts of PMs deviating from tried-and-true, objective Fundamentals in favor of this current, heavily financed, trend toward the appearance of virtue. 

For my part, I take my role seriously as a fiduciary analyst and will not allow threats of being called “anti-something” to stop me from asking your firm and all others like it *exactly* how you define and track your inclusion of such a political movement into your investment due diligence processes.  And I’m not alone.  22 States Attorneys General, the Secretary of State of Indiana, New York Workers Union, American Airlines Pilots Union, and a growing list of others are now crying foul as well.

Like others, I’ve studied your website and branding and see that the aforementioned movement is a large part of your positioning statement (don’t get me wrong; if the firm and employees wish to pursue social issues, more power to you, I truly hope that you are successful; my issue is with what I perceive to be the steering of investor dollars in ways that appear to incorporate this movement).  Specifically, I’ve looked into the composition of resulting investments and see that many of your PMs too now look to be nearly identical in composition to most of your competitors.

If you’ve read this far and still doubt that this is an engineered political movement, consider how it is that these same concepts now suddenly factor in so heavily in today’s lagging K-12 Education system, much to the surprise of concerned parents.

So, I repeat my question: How are you avoiding politics in investment mgmt and are your PMs Fundamentals Only?