End of Week Notes
Investing in Racial Justice
Time to take action
It’s worth ending Black History Month by starting off this week’s Notes with the sobering results of the Ariel-Schwab Black Investor Survey:
Black Americans Continue to Trail Their White Counterparts in Building Wealth.
The survey, based on 2,100 respondents, half Black and half white, from households with at least $50,000 in income, came to these conclusions:
The deep-rooted gap in stock market participation between the groups persists, with 55% of Black Americans and 71% of white Americans reporting stock market investments.
This disparity, compounded over time, means that middle-class Black Americans will have less money saved for retirement and less wealth to pass onto the next generation than their white peers
Black Americans are less likely than white Americans to own almost every kind of financial vehicle, with the exception of whole life insurance, which is favored in the Black community.
They are also less likely than white Americans to have written wills, financial plans, or retirement plans.
For Black Americans, disparities grow every month; while they save $393 per month, white Americans are saving 76% more ($693 per month).
Even Black Americans who earn more than $100,000 a year consistently save or invest considerably less than their white counterparts at the same income level.
Black Americans are also far less likely to have inherited (23% vs. 51%) or expect to inherit wealth (15% vs. 35%).
Our History
The wealth gap came to be because of white racism, so it is as much a part of our collective history as it is “Black history.” If you have 30-minutes, take a look at this video, which I viewed as part of a racial equity program for a board I serve on (the Oak Park River Forest Community Foundation):
It left me heartbroken, because it really drove home for me the full extent to which the public policies that helped my grandparents and parents — and therefore me — build wealth were denied Black families.
And more than that: because of the racist application of these policies, they were even more successful at helping white people build wealth. They made home ownership even more attractive to white people who could use low-interest mortgages to escape the “melting pot” city to move to lily-white suburbs. In the process, the policies helped define “whiteness” in America, bridging ethnic animosities and welcoming all who were white into segregated places where “everyone” could live the post-Depression, post-World War II American Dream.
So where do we find ourselves today? A survey released in June 2020 showed that only 44% of Black Americans own a home compared to 74% of white Americans. We’re also going backwards, as that 30 percentage-point gap is larger than it was in the 1960s, according to a report released by Community Capital Management this week that is definitely worth a read:
Investing in Racial Justice
Obviously, a lot of work is needed to close the gap and investing is perhaps not the primary means to effect change. But it’s important for us as investors to know that investing is one of the tools that can lead to change rather than looking the other way, shrugging our shoulders and saying it’s up to activists, politicians and bankers.
Community Capital Management outlines what it’s doing in its aforementioned report. Its flagship CRA Qualified Investment Fund, with nearly $3 billion in assets, was launched in 1999 to help banks meet the investment test requirements of the Community Redevelopment Act. The fund, also open to individual investors, focuses on agency mortgage-backed securities that benefit low and moderate income borrowers.
Another fund, Access Capital Community Investment Fund, run by RBC Global Asset Management, takes a similar approach.
Last year, CCM launched its Minority Community Advancement Racial Empowerment Strategy (also known as Minority CARES), which allows investors the opportunity to “direct their fixed income capital to advance racial equality, tackle social disparities, and help build an economy that provides opportunities for everyone from affordable housing to access to capital — the basic building blocks of economic equality.”
A new ETF launched in December — too late to make it into my “Sustainable Funds U.S. Landscape Report” —called Adasina Social Justice All-Cap Global ETF (JSTC). The fund tracks the Adasina Social Justice Index, “screened for social justice and designed to support progressive movements for change.” In addition to broad ESG evaluations, JSTC screens on a number of racial justice concerns, including activities that support the prison industrial complex, for-profit colleges, and corporate diversity and inclusion policies.
Also available to U.S. investors is ImpactShares NAACP Minority Empowerment ETF (NACP), which tracks the Morningstar Minority Empowerment Index, designed to provide exposure to U.S. companies with strong racial and ethnic diversity policies. NACP is a nonprofit ETF and any excess fees go to support the NAACP. It also engages with companies on what they need to do better in order to be candidates for inclusion.
It probably wouldn’t surprise you that both of these ETFs have small asset bases. As of today, NACP’s is $23.4 million and JSTC’s is $42.8 million. If you are reading this and nodding along in agreement, why not make an investment in the name of racial equity and justice? Why not be among those willing to go first in making an investment?
Of course, there are many other sustainable funds in the U.S. that include racial equity and justice concerns in their approach and that have established engagement programs. Look for them to hold accountable in this year’s proxy season companies that have made commitments about racial equity and justice.
A New Manager Selection Process for Increased Diversity
Speaking of Adasina Social Capital, in this thought-provoking piece, its founder and CEO Rachel Robasciotti offers nine ways that can help due diligence teams “remove systemic barriers to Black, Indigenous, and other asset managers of color, while continuing to meet fiduciary responsibilities” — the list includes being willing to go first.
Closing the Racial Wealth Gap Means a Growing Economy for All
The real reason to close the wealth gap is because it’s unjust, built on deliberate actions taken to create and maintain it. But a recent MacKinsey & Co report estimated that by closing the racial wealth gap the U.S. GDP could be 4% to 6% higher by the end of this decade.
All hands on deck.
