New ‘anti-woke’ ETF makes Starbucks its first target

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A newly established fund that intends to target companies perceived as "woke" is set to focus on Starbucks as its inaugural target. This move comes as investors driven by political motives seek to benefit from Donald Trump's election.

Azoria Partners plans to introduce an actively managed fund early next year that will not include S&P 500 companies which apply diversity, equity, and inclusion principles in their hiring practices.

The fund is set to reveal its Starbucks strategy on Thursday at Trump’s Mar-a-Lago resort in Florida, as noted in statements reviewed by the Financial Times.

Cathie Wood and Kevin Roberts, the mastermind behind Project 2025 for Trump’s administration, are set to participate in the event, as indicated by an invitation reviewed by the FT. Neither Wood nor Roberts provided comments when approached for their input.

"Regardless of whether they supported President Trump or not, Americans are hesitant to put their money into companies that engage in what some call woke science practices," stated James Fishback, a co-founder of Azoria, during a recent interview. He was referring to hiring policies that prioritize diversity. "Our focus is on representing the interests of shareholders, and implementing human capital hiring quotas can be detrimental to all investors."

The coffee company, valued at around $110 billion, stated in a message to the Financial Times that it does not have any "targets or quotas during the hiring process." The company clarified that the policies mentioned by Azoria, which aimed for at least 30% racial and ethnic diversity among corporate staff, were goals rather than mandatory quotas. They also noted that these policies had recently lapsed and had not been brought back.

The newly established fund represents the most recent effort by investors who support Trump to resist diversity, equity, and inclusion (DEI) as well as environmental, social, and governance (ESG) programs implemented by major U.S. corporations. Additionally, they aim to take advantage of the anticipated shift in the political landscape in Washington.

Starbucks, which operates approximately 40,000 coffee shops around the world, has not performed as well as the overall market this year. However, since August, its stock has gained traction amid optimism that the newly appointed CEO, Brian Niccol, will revitalize the company’s struggling operations.

The newly established “anti-woke” fund, launched by Fishback and his Azoria co-founder Asaf Abramovich, plans to blacklist around thirty-six companies, unless these businesses decide to eliminate their Diversity, Equity, and Inclusion (DEI) initiatives.

Roberts, who heads the Heritage Foundation think tank, and Wood, the founder of Ark Investment Management, are both set to speak at the event taking place at Trump’s resort on Thursday.

Fishback's fund hasn’t started managing any money yet, which means the Starbucks campaign doesn’t have the financial muscle to impact the company's choices. Meanwhile, the influential activist fund Elliott Management has acquired a significant share in Starbucks, which contributed to the decision to replace its CEO earlier this year.

In contrast to activist hedge funds that acquire shares in companies to push for changes, Azoria plans to promote its objectives by removing companies from their index and asserting that diversity, equity, and inclusion (DEI) policies are negatively impacting their stock performance.

The approach takes inspiration from what's known as environmental, social, and governance (ESG) funds. These funds have avoided investing in industries that harm the environment and have faced criticism from numerous conservative commentators.

Azoria's upcoming exchange-traded fund (ETF) is scheduled to debut early next year with the ticker symbol SPXM, representing S&P Meritocracy. During a presentation at the Mar-a-Lago event, Fishback will assert that the stocks of S&P 500 companies that consider diversity in their hiring practices have lagged behind their competitors.

Some studies have opposed that view, such as a report from McKinsey released last year. This report revealed that firms in the top 25% for racial diversity were 39% more likely to achieve better performance compared to those in the bottom 25%.

Fishback, who has a background at the hedge fund Greenlight Capital and is currently entangled in a legal battle with its founder, David Einhorn, is one of the Wall Street investors looking to benefit from a swing towards conservative policies as Trump makes his way back to the White House.

Other politically motivated investors have made significant impacts despite their smaller size. For instance, the activist investor Engine No. 1 successfully acquired three board positions at ExxonMobil in 2021 by launching a campaign against the oil giant, all while managing just $240 million in assets.

Fishback contended that hiring based on ethnic and racial diversity considerations was a political move that could be detrimental to shareholders.

He stated, "Stop that nonsense. Bring in the most talented individuals. Don’t feel sorry for it; focus on generating profit, distribute it to the shareholders, and act ethically."

Further contributions were made by Gregory Meyer and Antoine Gara based in New York.