Transcript:

CAROLINE WOODSJoining me now, Mike Schnackenberg Head of Distribution at Eventide Asset Management. Mike, thanks so much for joining us.

MIKE SCHNACKENBERGWell thanks for having me, Caroline

CAROLINE WOODSMike, this is an interesting one because most investment products focus solely on returns. But even tide says it also cares about a company’s impact on the world. And you specifically take a biblical worldview. So explain how that philosophy works in practice.

MIKE SCHNACKENBERGYeah, absolutely. You know, I think even before diving into philosophy, we’ve identified a problem in the marketplace that we want to solve. And that problem is really around values misalignment. And what we found is that the vast majority of faith driven individuals are unknowingly investing in and profiting from the products and services that are causing the problems that in many cases, they’re they’re praying that God will solve.

MIKE SCHNACKENBERGAnd we feel like that values misalignment is unnecessary and honestly has kind of been unique to investing in every other area of our lives. Our values are driving how we vote, how we how we give, how we parent. But we’ve effectively been intermediated or even divorced from our values within our investment portfolio. And so what we’re trying to do it, Eventide, is really promote a philosophy around investing as ownership.

MIKE SCHNACKENBERGAnd as owners of a business, we have an ethical responsibility to understand how those products and services are creating value or detracting value. To your point, for the global common good. And so one way that we’ve done that is really think through how do you take a love your neighbor approach to investing. What does that look like? And for us we had to figure out who are the neighbors of a business.

MIKE SCHNACKENBERGAnd so we’ve spent a great deal of time developing a framework called business 360, which is essentially identifying those six neighbors, which we would say our customers, employees, supply chain, host communities, environment and society. And then doing a deep assessment on how those underlying products and services are creating value or extracting value for each of those neighbors.

CAROLINE WOODSOkay, so can you dig in a bit more about what qualifies a company as creating value for the global common good?

MIKE SCHNACKENBERGYeah, we believe that business has great opportunity for positive impact, and even in the faith based investing space, there are many, negative screened options which we believe is a great step forward. Even tied, you know, we take an avoid embracing engage approach. So we want to avoid any company who has products and services that are, again, detracting value from those, the neighbors of that business.

MIKE SCHNACKENBERGBut then we’re going a step further and saying, okay, if we’re going to root for what we own, what do we want to be investing in? Where can our next dollar have the greatest impact as we invest in the market? And so we’ve developed a team, a dedicated team of five, within our business 360 function that are coordinating with our fundamental active investment team.

MIKE SCHNACKENBERGReally. And in hopes of becoming, you know, being in the top 1% of knowing these companies inside and out. And that’s beyond just the financials. You know, we believe to be excellent investors in this marketplace with such, information that is is everywhere and easily accessible. You really need to get into the qualitative non-financial aspects of a business to effectively understand culture, leadership, identify attributes that are going to be, pointing towards not just good performance, but pointing towards positive impacts for those that that business is trying to serve.

CAROLINE WOODSCan you be a bit more specific, though, about what kinds of industries or business practices you would typically avoid because of this various lens?

MIKE SCHNACKENBERGYeah. So our process typically, leads us away from areas like communication services, even consumer staples to an extent defense. And the reason for that is, we are looking to avoid companies who have products and services that are leading to addictive behavior. And that can that can range from alcohol, tobacco, gambling, etc., even social media.

MIKE SCHNACKENBERGWe’re also looking to avoid anything that is disrupting life. And so that typically takes us away from those areas. But again, we’re looking to not just avoid we’re looking to identify where the greatest kind of win win opportunity exists. And that’s win win from a return standpoint, but also from a values and impact standpoint. So we’ve historically, had a great expertise and continue to in the healthcare space where we see great opportunities for not just performance, but but also impact, and also have had investments across tech and, and other key areas of the marketplace, that that allow us to get really diversified exposure, but leaning into products that are creating

MIKE SCHNACKENBERGvalue.

CAROLINE WOODSYeah. I was taking a look at your large cap growth ETF, ESG. And so I see names like Nvidia and Broadcom in there but not Apple meta Microsoft Alphabet. So that makes it a bit more sense now in terms of why you’re leaving those out. I do think though there’s for the greater good. But then there’s also that the good of the portfolio that I’m sure investors are considering as well.

CAROLINE WOODSSo how does applying a values lens impact long term performance? Does it help it? Does it hurt it? Or does it just simply own or change the kinds of companies you own?

MIKE SCHNACKENBERGYeah, it’s a great question. And and the large cap growth area is, is an interesting area for us to take this approach within. And you rightly called out that we do not invest in any of the Mag seven except for Nvidia. And that’s really due to, areas of focus within those firms that are, again, in our view, value destructive.

MIKE SCHNACKENBERGSo what we’re really excited about with the systematic line of ETFs that we’ve launched, which the large cap growth ETF, SLG that you just mentioned would fall with them, is this idea that we believe faith driven investors don’t have the luxury of investing passively because indices are inherently value is values agnostic. However, we’ve seen the great value of long term equity market exposure, and we are very supportive of that opportunity for to help investors meet their goals.

MIKE SCHNACKENBERGWhat we wanted to create was a win win opportunity where we could provide that more predictable risk in return, as we as we seek to, get as close as we can to that benchmark, but by only investing in the products and services that are creating value. And so within that strategy, we’re investing, we’re, screening out nearly 70% of the investable universe, but then seeking to optimize back to that similar, risk return feel of the underlying benchmark.

MIKE SCHNACKENBERGNow that that is in hopes of not just providing exposure, but also providing the opportunity for for excellent returns moving forward and back to the market. What’s that?

CAROLINE WOODSCan you beat the market, though? Can you, you know, have similar gains to what, say, the overall S&P 500? What are the returns look like?

MIKE SCHNACKENBERGYeah. So our hope is to to certainly have similar returns to that that you would receive with the S&P 500. You know we’re building these products on a 17 year basis of fundamental active investment success. And so we really do believe that by focusing on the qualitative aspects of a business and seeking value creation, there is an underappreciated source of alpha there within.

MIKE SCHNACKENBERGAnd so our intention is to, quote unquote win the investment game. We just choose to do so in a very specific way, which is values driven through a biblical worldview.

CAROLINE WOODSJust quickly, what is the Gold Standard Company? I see you have a small cap ETF, a U.S. market, large cap growth, large cap value. We also have an international, ETF coming out. But, is there one company that’s like the gold standard that checks all the boxes?

MIKE SCHNACKENBERGIt’s hard to pick one. We love all our companies equally, but, I will say the gold standard is a company that is operating with servant leadership that is caring for their employees, that is creating value for their customers, that is operating well within their supply chain. That’s being good stewards of the environment, adding value to that host community and ultimately adding value to society through or through their their existence, as well as the products and services that they’re putting into the marketplace.

MIKE SCHNACKENBERGAnd and we think many of those companies exist. And our tagline is investing that makes the world rejoice. You know, we really believe that business has time and time again shown the ability to really increase the standard of living, but also directly contribute to human flourishing. So any company that is helping us, achieve those goals, or maybe better helping their stakeholders achieve those goals, would be a gold standard business in our view.

CAROLINE WOODSJust quickly, because we’re just about out of time. This very much it feels like it would fall under ESG. But ESG investing has very much faded from the conversations that I’m having. So what’s demand like? Is this still pretty niche or are you seeing broader demand, and if so, why is it gaining traction?

MIKE SCHNACKENBERGThat’s a great question. And we really do feel like we’re in the early innings of what could be a transformational shift in the way that people invest. And and really, one of the big trends in the industry is the faith alignment and investment portfolios. And, you know, as we think about that market, you know, $22 trillion is sitting in the hands of church attending Christians.

MIKE SCHNACKENBERGBut again, as I said at the outset, many of those don’t even know that there’s an opportunity to align their values with their investments. The reason that we believe that this movement will be a bit more persistent is just as I mentioned, we’re rooted in a biblical worldview. We believe that the lens that we’re looking through is rooted in unchanging biblical truths like these are very persistent.

MIKE SCHNACKENBERGWe’ve seen over time how how humans flourish and ultimately how companies can thrive. And we believe overlaying that, that worldview and approach is going to lead to, not just values alignment. For, for our clients, but but also the opportunity for practical returns.

CAROLINE WOODSWell, it’s really interesting perspective, and we appreciate you sharing some light on your world. Mike Hackenberg, head of distribution at Eventide Asset Management. Thank you so much for joining Schnackenberg,

MIKE SCHNACKENBERGThank you Caroline. My pleasure.