Presented by Syntax Advisors
Margareta Hricova: Welcome to ETF TV – your insight into the world of exchange traded funds, issuers, and investments. I am Margareta Hricova and joining me today is Dan Cooper, founder and CEO of ROC Investments and Deborah Fuhr.
Welcome to the show.
Dan Cooper: Nice to be with you.
Deborah Fuhr: Thank you.
So, Dan, congratulations on launching your first ETF, the ROC Investments (Return of) Character ETF (ticker: ROCI). Can you describe, what is ‘character’ and why is that important?
Dan Cooper: When I was working for my mentor, Joe Ritchie, he was a famous trader out of Chicago and we were coming at the market from the standpoint of, ‘how can we find an indicator that’s currently not being measured, that we could utilize to help us get a better edge on the understanding of the market?’ We knew we couldn’t out-analyze Wall Street, but we believed, personally, in the value of character, in the way individuals behave, and we have consistently found that it doesn’t get a marker at all in the way companies are valued.
Fred Kiel, who wrote the book ‘Return on Character’ and KRW, which is his company that we’ve partnered with, classifies character as integrity, responsibility, forgiveness and compassion. And these are the markers that we look for in the market using a variety of different tools to do that. It’s a very basic concept, and I think a lot of us intuitively understand that it matters when you work for somebody that actually, genuinely cares about you, that shows integrity, that consistently tells the truth, that owns mistakes or responsibilities. And it also matters whenever you work for somebody that does the inverse of that. And the ripple effects throughout the organization, especially when you consider it from the top down, have a significant impact in the long term performance of the company.
Margareta Hricova: So how do you measure character and how often do you update the measurements?
Dan Cooper: We start with a linguistic behavioral analysis, together with KRW’s research professors from Duke, Yale, University of Virginia, and INSEAD in France. And we use that process to whittle down the broader Russell 1000. And then we use publicly available data to run behavioral analysis looking for the markers of character as we define them; integrity, responsibility, forgiveness and compassion.
We also use behavior-based interviews with people that are familiar with these CEOs. We focus on the CEOs, but we are also doing analysis on the executive teams. We think that it is equally as important. All of those are quantified and then we generate a composite character score, and that’s how companies are selected and how they end up in our portfolio.
Deborah Fuhr: And what are the benefits to investors and people or companies that have character?
Dan Cooper: We believe it has been proven in the book, ‘Return on Character’ by Fred Kiel, published by Harvard Business Review, that character does matter and that character will outperform over time. It was a seven year study that analyzed high-character CEOs and low-character CEOs, and essentially it proved that high-character CEOs dramatically outperform low-character CEOs. And we’re trying to create a portfolio that allows people to buy the market and have the same market exposure as you would if you were to buy a broader market, and only allocate capital with CEOs that have ranked highly in our review.
So no longer do you have to just buy the market. You can actually buy the market at the same level beta on a relative basis and get exposure to high-character CEOs. We’re excited to have 106 companies, and we hope every company eventually gets on the list. You know, I mean, from our standpoint, the more we can see markers of integrity, responsibility, forgiveness, and compassion in the leadership of public companies, the better it is. And so we see this as something that we hope will bleed into the system of consideration for how companies hire and how boards hire leadership, because we think it matters. Not only from a financial standpoint, but we also think it makes a better world.
Deborah Fuhr: Thank you for joining us.
Dan Cooper: It was a pleasure. Thank you very much.
Margareta Hricova: Debbie, can we talk about some of the other news in the ETF industry?
Deborah Fuhr: Last week, 34 new ETFs were listed. There were 41 new cross-listings.
If we look through the end of last week, there’s now been 356 new products coming to market. 390 new cross-listings, 40 products have been closed and 35 extra listings have been delisted. So net, we’re up 316 new products and there’s 355 new cross-listings so far.
Looking at the products that came to market last week, we see there’s a lot of ESG. There’s a lot of themes. We see Dimensional has come to market again. We see that Global X has launched products both in Hong Kong and Japan. We’ve seen some products in China, in South Korea.
The other big news last week was the SEC published a paper on proposed mandatory climate risk disclosures. So there’s a comment period, but this is a big move from the SEC, and it’s actually quite different than the approach the EU has taken, where they went out with a taxonomy and now are working on definitions. So a lot is happening in the ESG space.
We also heard comments come out from the Bank of England and the FCA around cryptocurrency and some of the concerns they have there. So there’s a lot going on and we expect that we will close the month of March with a record number of new listings on a year to date basis.
Margareta Hricova: Thanks for the update, Debbie.
And thanks again to Dan for joining us today, and to our sponsors, Syntax Advisors, and of course, to all of you for watching. To watch prior episodes and to see news from the ETF industry, visit us at ETFTV.NET.
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