Billionaire investor Paul Tudor Jones, best known as the founder of Tudor Investment Corp., is seeing one of his other projects gain new prominence thanks to a decision by The Goldman Sachs Group, Inc. (GS). The big bank will turn Just Capital, Jones' nonprofit foundation, into an exchange-traded fund (ETF). According to Business Insider, the move is part of a push by Goldman toward diversification of its business. It will also provide new access to environmental, social and governance (ESG) issues for the major bank.
Just Capital and a Unique Ranking System
Jones' nonprofit foundation generates a ranking of companies based on their social impact. This weighted index will be used to create the Goldman Sachs JUST U.S. Large Cap Equity ETF (JUST), according to the report. Previously, Just Capital was a list of companies on the Russell 1000, an index of 1,000 of the largest corporations in the world based on market capitalization. These companies were ranked according to a variety of social impact metrics, including fair wages, corporate governance and environmental responsibility.
Jones spoke with CNBC about Goldman's decision to turn his foundation's ranking into an ETF, saying that, "I think it's going to be a really big ETF down the road. I think it's going to rival the S&P and the Nasdaq because I think it has both potentially, possibly, performance characteristics and you get to feel good when you own it." (See also: ESG ETFs Look to Catch Traditional Rivals.)
ETF Could Provide Solid Returns
The report suggests that, had Just's top companies already been included in the basket of an ETF up to this point, that ETF would have outperformed the overall Russell 1000 by close to 3.5% over the past two years. Jones spoke out in favor of companies with an interest in their broader impact, saying that "if you're going to have true social change, if you're going to have real societal betterment, it has to start with the private sector. It has to start with business."
The ranking of companies is based to some degree on polling data, used as a barometer to determine issues that people say they care about. Each of the issues is weighted in proportion to survey responses. Because the ranking of companies in Just's list changes from year to year, the ETF's holdings will also shift.
Goldman's decision to make an ETF out of Just's ranking of companies is the latest in a number of movements toward socially responsible investing (SRI), particularly in the ETF space. As the ETF field has continued to grow, so too has the investor appetite for funds that focus on both socially responsible investments in a broad way and also on individual social issues, from environmental impact and sustainability to local and regional justice issues. (For additional reading, check out: The Rise of the Socially Responsible ETF.)