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Nov. 11, 2020, 2:54 p.m. EST

Duty, honor, country, and wealth management: ETFs that aim to do right by veterans

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Andrea Riquier

In an exchange-traded fund landscape defined by everything from sexy high-tech /zigman2/quotes/205896633/composite BOTZ -1.98% to geeky high-finance /zigman2/quotes/220749415/composite SPYC -1.72% , can a fund based on enduring principles like loyalty, bravery, and sacrifice ever hope to make inroads?

One firm is betting it can, in large part because it has a built-in, and arguably underserved, target audience for the fund in question, the VictoryShares Top Veteran Employers ETF.

The ETF, which bears the ticker VTRN, launched in early November, but the impetus came from a transaction completed in 2019, when VictoryShares’ parent company closed on the acquisition of the asset management business of USAA, the financial-services giant that serves active-duty members of the armed forces and veterans.

“We wanted to make sure we’re always enhancing our investment lineup for them,” said Mannik Dhillon, who runs the ETF business at Victory Capital Management. “That includes bringing out themes that resonate for them. This allows them to access companies that have demonstrated ongoing support for hiring and retention of veterans.”

Investing in VTRN means getting a lineup of large companies that “recruit, employ and develop veterans in the workplace and champion best practices for veteran employees” and “that recognize the value, unique skill sets and specialized training that U.S. military veterans bring to the workplace,” according to fund marketing materials.

The fund’s holdings are remarkably similar to that of another ETF, the Pacer Military Times Best Employers ETF, which has been around since April 2018. In fact, seven of the top 10 holdings of the two portfolios are the same.

Todd Rosenbluth, who heads up mutual fund and ETF research for CFRA, doesn’t find that surprising. “There’s probably less subjectivity in employers that prioritize military service,” he said in an interview.  “Different asset managers or index providers may disagree on what is a value stock or have different criteria for dividend growth, but companies either do right by members of the military or do not.”

Read: A first-of-its-kind racial empowerment ETF is ‘flying under the radar.’ Maybe it shouldn’t.

The portfolios are strongly weighted toward industrials – which Rosenbluth notes is a logical career path for former members of the military – and financials. That means VETS has underperformed this year, losing 6% in the year to date compared to a nearly 10% gain for the S&P 500 index /zigman2/quotes/210599714/realtime SPX -1.79% . “It’s just like any strategy – at times it will underperform and at times it will outperform,” said Bruce Kavanaugh, a vice president at Pacer.

For Pacer, a slightly bigger disappointment is that the fund hasn’t gathered much in assets — just $1.6 million — in the 18 months it’s been open, Kavanaugh said. “It is very frustrating,” he told MarketWatch. “We want the fund to do well because we believe in the story.” The Pacer fund also explicitly notes that it screens for companies with a favorable “reservist culture.”

Pacer donates 10% of the 60-basis point management fee to “vet-related charities,” Kavanaugh said, and the firm would like to be able to make much bigger contributions as assets under management increase. VictoryShares’ management fee is also 60 basis points, and the firm will donate a portion of that to financial readiness programs.

Many ex-service members work at Victory, Dhillon said in an interview. “It’s a very interesting dynamic of having people on the team at the firm that have been in the shoes of the folks we serve. I think that is a very compelling proposition for the end investor to say, those that are taking my call or helping me manage my money have been there and done what I’ve done.”

In a crowded ETF marketplace and a financial-services landscape that’s increasingly trying to let customers align investments with personal priorities, these two funds represent a solid opportunity, Rosenbluth said.

“Members of the military and retired members of the military are more likely to think favorably about companies that recognize their service and the efforts they’ve made. It’s a natural market to try to tap into. The timing is right, coming ahead of Veteran’s Day when the entire country will be thinking more about the military community and looking to do right by veterans particularly in an election year when people feel patriotic.”

Read next: This government mortgage program healed the holes in this military family’s hearts

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