Gen Z now has an ETF that reflects their values

Gen Z seem determined to disrupt the world and are now bringing their disruptive attitudes to the world of investing.

This tech-savvy, mobile-focused generation is shedding old prejudices and embracing more progressive views on race, gender, work, family, environment, and just about everything in between. It was only a matter of time before they turned to investing.

Generation Z is defined as anyone born between 1997 and 2012, and succeeds Generation Y (1981 to 1996).

Older Gen Zers are now entering the workforce and starting to invest, but they’re not just looking to make money. They want to have a positive impact on the world by working for and investing in companies that help the planet, rather than harm it.

The financial crisis has left its mark on Generation Z, who have little faith in big financial institutions, central bankers and fiat currencies.

They want to take charge of their own financial future, invest in trading apps, and trust in cryptocurrency.

Gen Z is a powerful force, making up nearly a third of the world’s population, according to Bloomberg, slightly more than millennials.

Now Gen Z investors can boast their own exchange-traded fund (ETF), which launched on December 14 and promises to reflect their values.

The Generation Z ETF (GZEN), which trades under the symbol ZGEN, was founded by two teenagers, former child actor Julian Feder, 18, and Eitan Prins-Trachtenberg, 17, although the portfolio managers are Wall Street alumni.

The actively managed fund will target companies “that were born after the internet and whose usage, values, disruptability and innovation align with Gen Z,” according to its website.

“With 2.5 billion members, Gen Z is an economic powerhouse, set to be the highest earning generation in less than 10 years, earning more than $40 trillion a year,” the site adds.

The ETF currently invests in 51 stocks in the United States. Its top three weightings are social media company Snap, founded in 2007, video game developer Roblox Corporation (2004), and open online course provider Coursera (2012).

ZGEN is not the first fund to target specific age groups. The Global X Millennial Consumer ETF (MILN) and Principal Millennials ETF (GENY) were launched in 2016 and now manage $225 million and $104 million, respectively.

So far, GENZ only manages $5 million in assets, but that’s just the beginning. But is it more than a marketing gimmick?

Vijay Valecha, chief investment officer at Century Financial in Dubai, believes he has more to offer, as research shows that Gen Zers do have a different value system and set of expectations than their parents. “They are technologically savvy, appreciate diversity, the environment and issues like sustainability.”

They [Gen Z] are tech-savvy, value diversity, the environment and issues like sustainability

Vijay Valecha, Chief Investment Officer, Century Financial

They have already started changing the world of investing, pouring money into environmental, social and governance (ESG) funds and piling into cryptocurrencies, Valecha says.

“Unlike their parents, they have less confidence in traditional financial institutions and are more comfortable with trading apps like Robinhood.”

As baby boomers (1946 to 1964) retire and slowly die, Gen Z and Millennials will receive inheritances totaling tens of trillions of dollars, Valecha said. “It’s a big market. Who wouldn’t? »

Yet others are more skeptical. GENZ ETF works best as a sales and marketing tool, says John Moore, chief investment officer at wealth manager Brewin Dolphin. “Beyond that, it’s hard to see much in terms of merit.”

If Gen Z and Millennial investors really care more about issues like ethical business, human well-being, sustainability and diversity, then structuring this fund as an ETF doesn’t have a sense, says Mr. Moore.

With ETFs, you don’t own the underlying assets. “If having a voice and driving change is important, then you need ownership, a vote, and a way to provide feedback to management to make it happen.”

Leading fund managers like Baillie Gifford and Liontrust build long-term relationships with the companies and entrepreneurs they engage with. “It gives them a say in corporate governance, culture and communication.”

ETF managers don’t typically offer this, Moore says. “We suggest that any young investor take advice before investing their money in such a product. Alternative ideas could include Baillie Gifford Positive Change, Keystone Investment Trust or Liontrust Sustainable Growth.

ZGEN’s investment mandate is narrow and can work against it, says Gemma Boothroyd, an analyst at FinTech equity trading service Freetrade. “By investing exclusively in companies that have gone public since 1997, it leaves plenty of good investment prospects on the table for no other reason than to keep its ticker relevant.”

Tech giants Apple and Microsoft are a good example, she says. Gen Zers are among their most enthusiastic customers, but both stocks are excluded from the ETF’s portfolio, as they were launched in the dark and distant years of 1980 and 1986, respectively.

These are two of the most invested stocks among Gen Z investors on the Freetrade site, Ms Boothroyd says. “Given that the fund’s goal is to invest in companies used by and morally aligned with the values ​​of Gen Z, this hard line seems misguided.”

If having a voice and driving change is important, you need ownership, a vote, and a way to provide feedback to management to make it happen.

John Moore, Chief Investment Officer, Brewin Dolphin

Established companies that have adapted to attract younger customers may prove more innovative in the long run. “A company’s ability to pivot and adapt over time supports the fund’s stated objective of investing in companies at the forefront of innovation,” Ms. Boothroyd said.

She is also concerned about the ETF’s fee structure, as the total expense ratio of 0.60% is high for an ETF. “Fees aren’t everything, provided performance is good, but it’s still important to know the price you’re paying.”

Defining a generation’s moral compass is “difficult”, as is screening companies that fit, Ms Boothroyd adds. “Young investors are different, so there is a lot of potential here, but defining companies that meet their requirements is impossible.”

This may explain why many of ZGEN’s holdings seem to favor technology, which may not always be a force for moral good, but aligns with its mission to invest in disruptive and innovative businesses.

The downside is that it makes the fund less diversified. “ZGEN could be on the verge of a tumble if the current market tech selloff continues.”

It may need to broaden its investment criteria, but that would dilute the reason for its existence, Ms Boothroyd adds.

Whichever generation you belong to, one thing doesn’t change when it comes to investing, says Dino Ibric, vice-director of the Swissquote MEA investment platform. “The objective of any investment fund is to generate returns superior to those of its competitors.”

Many traditional funds already offer a variety of investment opportunities that Gen Z can relate to, such as innovative technology, robotics and FinTech, as well as impact investing, he says. “Younger investors tend to embrace new cutting-edge technologies that contribute to the disruptive trend.”

More funds will follow ZGEN because the target market is so attractive, predicts Ibric. “The younger generation of investors benefits from impressive degrees, easy access to information, massive purchasing power and an openness to technology. No doubt more venture capital firms, private equity funds and ETFs will be launched to target this sector.

The old investment rules apply regardless of your age. Never put all your eggs in one basket. Invest for the long term. Make sure you understand what you are buying. And don’t believe the hype.

Updated: January 17, 2022, 5:00 a.m.

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