Seeking Sustainable Companies with Lower Risk Amid a Volatile Market

The Portfolio Managers of the Hennessy Stance ESG ETF discussed the volatile market, how the ETF was positioned, portfolio changes, new holdings, and sector weightings.

April 2025
  • Kyle Balkissoon
    Kyle Balkissoon
    Portfolio Manager
  • Bill Davis
    Bill Davis
    Portfolio Manager

Information about the Hennessy Stance ESG ETF (the “Fund”), a semi-transparent actively managed exchange-traded fund ("ETF") with a Portfolio Reference Basket structure:

The Fund is different from traditional ETFs. Traditional ETFs tell the public what assets they hold each day. The Fund will not. This may create additional risks for your investment. For example:

  • You may have to pay more money to trade the Fund’s shares. The Fund will provide less information to traders, who tend to charge more for trades when they have less information.
  • The price you pay to buy Fund shares on an exchange may not match the value of the fund’s portfolio. The same is true when you sell shares. These price differences may be greater for the Fund compared to other ETFs because it provides less information to traders.
  • These additional risks may be even greater in bad or uncertain market conditions.
  • The Fund will publish on its website each day a “Portfolio Reference Basket” designed to help trading in shares of the Fund. While the Portfolio Reference Basket includes all the names of the Fund’s holdings, it is not the Fund’s actual portfolio.

The differences between the Fund and other ETFs may also have advantages. By keeping certain information about the Fund portfolio secret, the Fund may face less risk that other traders can predict or copy its investment strategy. This may improve the Fund’s performance. If other traders are able to copy or predict the Fund’s investment strategy, however, this may hurt the Fund’s performance.

For additional information regarding the unique attributes and risks of the Fund, see the Prospectus and SAI.

Key Takeaways

»    Over 60% of the S&P 500 stocks outperformed the overall Index, indicating a strong environment for security selection.
»    The ETF has a 3-year beta of 0.87 relative to the S&P 500 Index as of March 31, 2025.
»    Two new positions include an Industrials business, Hubbell International, and General Mills, a Consumer Staples company.
»    The top three sector weightings were Health Care, Consumer Discretionary, and Financials as of the end of the first quarter of 2025.

What are your thoughts on the volatile market over the first few months of 2025?

It was a volatile first quarter for the S&P 500 Index, as tariff discussions increased investor uncertainty in the economy and overall stock market. The S&P 500 declined 4% and the average stock fell 0.50%. However, 62% of securities outperformed the overall Index, indicating a strong environment for active security selection.  

How was the Hennessy Stance ESG ETF positioned during this volatile period?

As part of our active management investment process, the Hennessy Stance ESG ETF seeks companies that are most likely to outperform both in absolute returns as well as in risk-adjusted returns over the next quarter. We believe this focus led the portfolio to have a lower beta of 0.87 relative to the S&P 500 Index over the past 3 years as of March 31, 2025.
In our process to optimize the portfolio, we leaned heavily away from market risk in the first quarter, with underweight sector positions in Technology and Communication Services and an overweight in Utilities. 

As the largest 10 companies in the S&P 500 make up a growing share of the Index, STNC—which more closely tracks the S&P 500 Equal Weight Index—tends to perform differently from the traditional, market cap-weighted S&P 500. 

What were the portfolio changes in the quarter and would you discuss a few new additions?

The ETF is rebalanced every quarter, and we continue to seek companies that have a lower beta than the overall market. Among our new positions, we have added an Industrials business and a Consumer Staples company. The new position in the Industrials sector is Hubbell Incorporated, which designs, manufactures, and sells electrical and electronic products for non-residential and residential construction, industrial, and utility applications. Despite the ongoing tariff situation, we see upside in this position due to Hubbell’s strong earnings momentum. 

Another new position is U.S.-based food company, General Mills. We believe General Millers is a strong defensive addition to the ETF, as it has paid a 4% dividend, and has significant pricing power due to  its scale.

How have the ETF’s sector weightings changed over the past year?

Our sector weightings change each quarter based on our approach to minimizing tail risk. As of the end of the first quarter of 2025, the top three 
sector weightings were Health Care, Consumer Discretionary, and Financials.

Over the course of the past year, the ETF has generally held an overweight position in the Health Care and Industrials sectors. We’ve increased the ETF’s exposure to Financials and more recently, Utilities. The ETF tends to have underweight positions in Technology and Communication Services.

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ETFs are subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of an ETF’s shares may trade at a premium or discount to its net asset value, an active secondary trading market may not develop or be maintained, or trading may be halted by the exchange in which they trade, which may impact an ETF's ability to sell its shares. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the ETF. Brokerage commissions will reduce returns.

Investing involves risk, including possible loss of principal. Gains or losses on a single stock may have a greater impact on the Fund. For these and other reasons, there is no guarantee the Fund will achieve its stated objective. The Fund seeks to pursue its investment objective by using proprietary models that incorporate quantitative analysis. There is no guarantee that the Portfolio Managers’ use of these models will result in effective investment decisions for the Fund. From time to time, the Fund may concentrate its investments in one or more industry sectors. The Fund is currently substantially invested in the Health Care, Financials and Consumer Discretionary sectors and its performance is therefore tied closely to, and affected by, developments in these industries. The Fund invests in small-sized and medium-sized companies, which may have more limited liquidity and greater price volatility than larger, more established companies. Smaller companies may have limited product lines, markets, and financial resources, and their management may be dependent on fewer key individuals.

Sustainability investing risk is the risk that applying sustainable investment analysis to the Portfolio Managers’ investment decisions regarding the Fund’s portfolio may forgo certain investment opportunities otherwise available to the Fund. The Fund intends to invest in companies with measurably high sustainability ratings relative to their sector peers, and screen out particular companies that do not meet its sustainability criteria. The Fund believes that these sustainability factors are material to its assessment of the risk-return profiles of companies in which it invests. The relevance and weighting of sustainability criteria may vary significantly among issuers and third-party data providers. Sustainability is a subjective assessment and it is not uniformly defined. Sustainability data may be incomplete, delayed, inaccurate, or unavailable, which could lead to an incorrect assessment of a company’s sustainability characteristics. The Fund’s returns may be lower than other funds that do not seek to invest in companies based on sustainability ratings or screen out certain companies or industries. The Fund seeks to identify companies that it believes may have higher sustainability ratings, but investors may differ in their views of sustainability characteristics. As a result, the Fund may invest in companies that do not reflect the beliefs and values of any particular investor. Regulatory changes regarding the definition or use of sustainability criteria could have a material adverse effect on the Fund’s ability to invest in accordance with its sustainability strategy.

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Diversification does not eliminate the risk of experiencing investment loss.

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