West Hollywood-based LGBTQ Loyalty Holdings Inc. has launched what the company calls the first index incorporating survey data from the community in its methodology.
The LGBTQ100 ESG (environmental social and corporate governance) Index tracks the 100 highest performing U.S. companies that LGBTQ Holdings has determined to be most committed to advancing equality.
The index is now listed on the New York Stock Exchange, Bloomberg and Thomson Reuters.
“A lot of the financial market talks about ESG,” said Aashu Virmani, executive vice president at Fuzzy Logix, the data analytics firm responsible for the index’s methodology. “But at the same time, they have this idea in the back of their heads that if you do the right thing, you might not perform as well.”
Virmani said the purpose of the index is, in part, to demonstrate that investors don’t need to make a trade-off between supporting companies whose values align with theirs and making sound financial choices for their portfolio.
According to testing by Fuzzy Logix, annualized returns for the LGBTQ100 ESG outperformed the S&P 500 83% to 47.5%, respectively, for the five-year period ended Oct. 31.
The index’s volatility over that same period was marginally higher than the S&P 500, with a Sharpe ratio of 13.98% for the LGBTQ100 to 13.62% for the S&P 500.
“You don’t have to sacrifice performance to do something right,” Virmani said. “The launch of LGBTQ100 is a huge step because we have managed to show that doing the right thing pays.”
Fuzzy Logix ran 60 iterations of the index using its proprietary rapid-testing platform, according to Virmani.
“What most people do is eight or nine iterations,” he added. “That leaves them with a suboptimal product.”
To construct the index, analysts first cross-referenced the Fortune 500 list with the Human Rights Campaign’s Corporate Equality Index. The resulting pool of companies was then merged with data from third-party ESG research firm Institutional Shareholder Services Inc.
The third step involved a survey conducted by public-opinion tracker The Harris Poll of approximately 3,000 LGBTQ individuals from across the United States. Questions touched on issues such as respondents’ opinion of companies and the companies’ track records on LGBTQ-related issues.
Once several layers of equality-related data had been taken into account, financial metrics were then calculated. The metrics were based on roughly 40% price-to-earnings ratio, 30% free float adjusted market cap, and 30% inverse of volatility, according to Virmani.
Controls were put in place to ensure that no one sector would make up more than one quarter of the index. The index will be rebalanced four times per year and reconstructed annually.
LGBTQ Loyalty Holdings is also seeking approval from the Securities and Exchange Commission for an exchange-traded fund based on the index. The process is in the final comments phase, according to Bobby Blair, founder and chief executive of LGBTQ Loyalty Holdings. His company intends to launch the ETF in the first quarter of 2020.
“We want to inspire corporations to be at the highest level of equality,” said Blair. “When these companies support more and invest more (in equality), ultimately what happens is that our community and the next generation of young people will be better served.”
