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How do you beat the S&P? Go for woke! That’s the strategy of the Vegan Climate ETF $VEGN ( ▲ 0.95% )  that aims to invest only in companies that are kind to animals and do good for the planet. BBTW editor Peter Green spoke with Beyond Investing co-founder Claire Smith about how her ETF has consistently outperformed the S&P 500, by as much as 30% in  the second quarter, and typically by 5-7 percentage points a year, over time. We sat down with her to understand why excluding entire industries on moral grounds might actually be a savvy financial strategy.

What was the genesis of the fund?

I was a vegan, and what I found was that there was no other fund that took seriously the issue of portfolio construction along vegan principles. I sought out a number of other people with similar philosophies to form the firm, and we put together a fund which took into account the supply chain of animal products, as well as fossil fuel, single-use plastic, and generally high emissions from certain industries. That's why we called it the Vegan Climate Fund—it took into account vegan principles, and also the broader climate.

What exactly gets excluded?

We're actually looking at a number of categories of animal usage—rearing, breeding, and the entire supply chain, through to the distribution of these products, which could be by grocery chains, but also the hospitality industry. There are a couple of other categories, primarily around animal testing and other forms of animals in captivity, which we also exclude, but the vast majority is around animal-derived products. We are also excluding companies whose products are tested on animals. This takes out the pharmaceutical industry, because of preclinical trials, but it also takes out a number of other companies who test on animals for toxicology reasons. Cosmetics, if they are tested on animals. and from a moral standpoint, we do exclude arms makers as well.

How did you personally arrive at this approach?

I've been in finance and investment since the mid-1980s,and my co-directors have also been in finance and investment for at least 30 years each. But another commonality is that we've all been concerned about the environment.

A third of your holdings are in U.S. financials and tech. How does that square with such strict exclusions?

If you think about it, if we're taking out a lot of the consumer sector, the energy sector, and also portions of utilities and financials, but we still want to invest, then necessarily anything that's left in has an increased weight. It's not quite proportional, because we do apply some concentration limits on individual stocks, and that will depress slightly the large technology stocks versus what they might end up being if we were just applying a pro rata weighting.

Is there a bigger message here beyond personal ethics?

Yes. The type of companies we are excluding are rooted in the past. They are rooted in methods of production and types of products which can be avoided and which can certainly be made in a better way—the idea of oil and gas and the shift towards renewables, well, obviously it's a far cleaner way to produce energy. We have, through our mid-cap exposure, come to hold some renewables stocks—batteries or solar—and that has been helpful in terms of performance. Another example would be Elf Beauty $ELF ( ▲ 0.05% ), which was a mid-cap exposure initially, but has now entered the S&P 500. So, as a function of that, we have a growth tilt because of technology, but where we are adding in these mid-caps in newer industries, that's generally been a positive because we've seen those companies grow. The companies we're excluding are in what we consider broken business models. We don't see the fossil fuel industry growing. We don't see the system of livestock production as a growth industry either. It is the case that in the U.S. and Europe, the size of the herd of animals is actually reducing. So, we are steering our investors away from companies which we feel are declining and risky.

So why do you keep beating the S&P?

Because we are tilted towards growth industries in the main. The type of things that we have been excluding are largely not growth industries, and that leaves us with higher weight towards growth industries.

How has the fund grown since launch?

The fund on the first day of launch accumulated about $4 million of assets. By the end of the first month, we had about $12 million. And since that point, which was obviously October 2019, there has been steady growth in assets, with people buying into the fund. There's been a few redemptions, but generally we've seen units being created fairly soon after, so we haven't had very many dips in terms of numbers of shares. It's gone up and down with the market, but it's generally performed in a similar fashion to the market—because obviously the majority of the stocks in the ETF are S&P 500 stocks in any case. It's just a subset of those S&P 500 stocks.

How often do you review the portfolio, and how does that affect what you can hold?

We're rebalancing on a six-month basis, reviewing the top 500 stocks, and so any new stocks that have entered that top 500 are considered for the portfolio. Primarily it is market cap weighted, but with the risk controls that I already discussed, that apply to the largest stocks to stop us taking too high individual stock concentrations.

Do you think you're changing minds about ethical investing?

I think it gets harder [to criticize us] as our performance continues to be better than the market—to the extent that, over time, we've been running for almost seven years now with a live ETF, and you can also look at the index performance since 2018. It becomes more and more difficult for our critics to really criticize what we're doing. I don't know whether we've necessarily persuaded them, but what is more important to us is that people who invest with us can feel comfortable, that they're not taking on too much additional risk without getting the reward back for it.

What about NVIDIA and AI, or newer energy plays like nuclear?

A stock like NVIDIA $NVDA ( ▲ 2.01% )  has been in the portfolio for some period of time and has generally been a strong contributor. It does not conflict with the screening rules that we apply—we can find no reason to discard it. SpaceX $SPCX ( ▲ 6.42% )  was launched after our last rebalance, which took place early in June, and we don't make any spontaneous changes to the portfolio between rebalances. We would be reviewing that in December.

Is this reshaping how people think about ethical investing generally?

What we're showing is that you can be a lot more deliberate about what you will and won't invest in from the perspective of it being a harmful business activity, and you can still come up with a decent portfolio.

Is Beyond Investing's approach spreading to other funds?

I have seen some other entities do a little bit in terms of the animal testing exclusion, and apply similar exclusions around factory farming. But I don't see any other entity that is looking across the entire supply chain in the way that we do.

Tell me about the new international fund you're launching.

The new fund is applying exactly the same investment framework, the same rules, the same portfolio construction methodology. But it is only investing in international stocks, so there is no overlap in terms of stocks between the old fund and the new fund. It will be about 130 stocks in total. As a function of it being an international stock fund, you have the opportunity to broaden your portfolio by investing internationally—that's complementary to holding the U.S. We have a slightly less strong technology tilt and more of an industrial tilt, so you're actually getting some sector diversification as well. 

A quick tangent: does the fund hold automakers like Volkswagen?

My recollection is that Volkswagen $VLKAY ( ▼ 0.99% )  is not in our international index. We are generally somewhat light on automobile companies because the majority of them still use leather in their manufacture. We do, or we have, held companies that have taken a policy of not using leather.

Some argue leather is just a byproduct of beef production, so using it isn't really an added harm. What's your take?

I think that's kind of greenwashing by the leather industry, to be honest. The leather component—the percentage of the price of the leather—is fairly material in terms of the value of a carcass. So, on that basis, I don't really see it as a byproduct. I see it as an important product within the context of the value of a cow carcass. It's not something that would ever be just tossed away.

This interview has been condensed and edited.

—Peter S. Green

Big Businesses mentioned this week:

$VEGN ( ▲ 0.95% )  $ELF ( ▲ 0.05% )  $NVDA ( ▲ 2.01% )  $SPCX ( ▲ 6.42% )  $VLKAY ( ▼ 0.99% )  $GOOG ( ▲ 1.77% )  $AAPL ( ▲ 0.93% )  $OPEAZZX ( ▲ 0.47% )  $ANTHZZX ( ▲ 1.44% )  $LUV ( ▲ 0.68% )  $UAL ( ▲ 0.22% )  $DAL ( ▲ 0.72% )  $AAL ( ▼ 1.18% )  $VWAGY ( ▲ 9.05% )  $KALSZZX ( ▲ 0.55% )  $PLYRZZX ( ▼ 0.85% )  $SHEIN ( 0.0% )  $WMT ( ▲ 2.42% )  $HWM ( ▲ 2.77% )  $BRK.A ( ▲ 0.5% )  $DPC ( ▲ 3.9% )  

This week, big business!

• The Usual Suspects

• The Short Stack

• Trumplandia

• Elon’s World

• Want more Cheddar?

The Usual Suspects

• Google avoids Ad breakup: Just because you did the crime doesn’t mean you gotta do the time. That seems to be the rule for Google’s $GOOG ( ▲ 1.77% ) recent string of antitrust defeats. After ruling in April that Google had built an illegal monopoly in ad tech, Federal judge Leonie Brinkema refused the Justice Dept.’s request to have the company split off its ad business, and instead ruled it just needs to fix the algorithms so they no longer favor Google and they hand more revenue to online publishers. How that will be done isn’t clear yet. The ruling follows a similar move by Judge Amit Mehta in California, who ruled Google had an illegal monopoly on internet search, but refused the DoJ request that Google spin off Chrome. Instead, it had to end its lucrative deal making Google the preferred iPhone search engine and share some data with competitors. The news sent Google shares up about 1.4%. They are up more than 57% in the last year. 

• Will Apple get a Ternus turnaround? A retiring Tim Cook handed the keys to Apple $AAPL ( ▲ 0.93% ) to new CEO John Ternus on Tuesday, who will have to make Apple’s brand cool again, while showing that a $4 trillion company can still innovate, and simultaneously produce a dependable stream of profits. All that, while Cook stays on as board chair. Top of the list is what to do about AI, and how to to integrate it into the iPhone and other devices after a string of misfires that included hallucinating AI news alerts, a class action lawsuit over non-existent AI features, and a decision to abandon its own AI models for OpenAI’s $OPEAZZX ( ▲ 0.47% ) ChatGPT and Google’s Gemini. Apple has also lost more than 400 employees to OpenAI. No matter what he does, Ternus will have a hard time beating Cook’s market record. Apple shares rose 2,700% (including dividends) under Cook. Ternus will get a $3 million annual salary and a targeted stock award of $55 million for fiscal 2027. 

• Hug me tender: Wondering if that circular financing AI bubble might burst? It looks like Nvidia $NVDA ( ▲ 2.01% ) is thinking the same thing. The chipmaker at the heart of the AI boom (and its funding circles) isn’t putting all its tokens in one basket. While it’s deeply embedded with proprietary AI platforms OpenAI and Anthropic $ANTHZZX ( ▲ 1.44% ) , which own and keep a tight lid on the magic inside their LLMs, Nvidia has been steadily building (and buying relationships) with the open-weight model platforms, which let developers share the code to build their models for free. Thai week, it’s announced an agreement to buy open-weight platform Hugging Face for $13 billion. It’s used by more than 18 million developers, researchers and creators. In August, it agreed to spend $6 billion to buy open-weight model Poolside. While developers and end users figure out which works best for them - proprietary systems or open-weight models - Nvidia’s genius lies in understanding that both will need  the same thing: more Nvidia chips. Shares in Nvidia are up 10% in the past month. 

• Southwest glams up. Once a budget airline known for its mini-skirted flight attendants, sardine-can crowding and lack of assigned seats, Southwest $LUV ( ▲ 0.68% ) has outlived most of its competition and become the largest sole carrier of domestic passengers in the U.S. Now it’s making a final push to glam up like United $UAL ( ▲ 0.22% ) , Delta $DAL ( ▲ 0.72% ) and American $AAL ( ▼ 1.18% ) ; A high-end, high-fee credit card and slick lounges, including 30,000-square foot spaces in Nashville and Baltimore (!). Southwest has remained profitable for the past four years, up 12.5% in the year ending June 30. Shares are up more than 70% since a low in October, 2023, but they’re still down more than 20% in the past five years. 

• What’s Bugging VW? Just two years ago, Volkswagen $VWAGY ( ▲ 9.05% ) , was the largest company in Europe, and the world’s largest carmaker by revenue. But the entry of aggressively-priced Chinese cars into the EU, slipping sales in China, U.S. tariffs, and a failure to capture the emerging EV market in Europe has left VW in trouble. Still controlled by the Piech and Porsche families (with 53% of voting rights), newly installed CEO Oliver Blume announced plans earlier this year to fire 100,000 of the firm’s 620,000 workers. But workers have a say in German companies' management, and they’ve said no, forcing a potentially tumultuous showdown. Blume says he needs to cut bloated management, invest in designs and halve the number of models made across the company’s dozen brands, that stretch from Lamborghini to Skoda, and include three truck makers. Operating margins have plunged to 2.8%, a fourth their former level, and Blume wants to bring back stronger profits and overseas markets, shifting more manufacturing to the countries where cars are sold, as the Wall Street Journal reported. German workers tend to avoid change, but as Blume said last week, something’s gotta give if VW is to survive: “Tariffs, new competitors and geopolitical risks: The entire automotive industry is under enormous pressure.” Shares in VW have fallen by 75% in the past five years. 

• I couldda told ya that: Remember those prediction markets, like Kalshi $KALSZZX ( ▲ 0.55% ) and Polymarket $PLYRZZX ( ▼ 0.85% ) , that pretend they are selling investible futures contracts and are regulated by the U.S. Commodities Futures Trading Commission, instead of being treated like the online gambling platforms they so resemble? Well, the evasive language may be catching up with them, and now the Supreme Court may weigh in. A federal appellate court in San Francisco rejected Kalshi’s effort to block Nevada from regulating it as a gambling operation. That’s counter to an April ruling in Philadelphia that said Klashi’s sports event contracts were really commodity swaps. But San Francisco Judge Ryan Nelson wrote Friday’s opinion that Kalshi’s “sports event contracts were not ‘swaps’ because they were sports bets.” New Jersey is already taking Kalshi to the Supremes, with state AG Jennifer Davenport arguing that prediction markets “have no right to offer their sports bets without following state law.” How the Supremes will rule is an open question. A new $1 billion fundraising round in Kalshi rival Polymarket $PLYRZZX ( ▼ 0.85% ) includes $300 million from 1789 Capital, the VC firm led by Donald Trump, Jr. (he’s also a board adviser to Kalshi), and in a clear indication of how politically freighted the prediction markets are, Kalshi says its banned ex-Congressman George Santos over insider trading for bets on whether he’d attend the State of the Union address, and fined him $71,356. Meanwhile White House teleprompter operator Gabriel Perez was forced to pay back the $102,000 he won betting on which words or phrases Trump would use in a speech. He was also fined $65,000. Kalshi seems to be hedging its bets: It’s in talks with the New York Times sports section, aka The Athletic, over a sponsorship deal, Front Office Sports reports, but amid pressure from staffers and the Times’ union, Athletic chiefs called off talks on a sports betting—ahem, prediction market — partnership, FOS reported. 

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The Short Stack

• Shein don’t shine: Shein $SHEIN ( 0.0% ) , the Chinese fast-fashion giant that once boasted it could create 4,700 new styles a day, seems to have lost its edge. Shares are down 5% from opening day. Shein’s problems are legion: It’s a relic of a (recently) bygone era, but also of stepped-up customs and tariff enforcement with both the U.S. and Europe, citing sweatshop labor conditions in its factories for higher tariffs. And with Shein’s business model based on shipping direct to home, the Trump Administration's decision to end the de minimis duty exemption that charged no duties on packages worth less than $800, pulled the rug from under the company.

• No Band-aid for this one: Like your employer-provided health insurance? It may not be so nice for much longer. A survey by healthcare consultant Marsh says employers expect the cost of benefits to jump by 11% next year, and their cutting back benefits and raising co-pays to keep that rise to about 8.2%, after a projected 6.7% hike this year. Advanced treatments that are more effective but more expensive are one cause, but the bigger problems, say Marsh, are healthcare systems consolidating, giving them more bargaining power with insurers, and cutbacks in government healthcare funding. 

• Walmart feels the pain, again. In a second major loss for America’s biggest retailer, Walmart $WMT ( ▲ 2.42% ) agreed to pay the U.S. government $50 million to settle claims it ignored suspicious prescriptions and filled hundreds of thousands of orders for opioids, helping fuel the national drug addiction crisis. The settlement, for a suit filed in 2020, includes setting up new procedures for employees to flag suspicious drug orders. The DoJ says at the time Walmart ignored internal whistleblowers, even filling 3,500 controlled substance ‘scrips for a single doctor. Walmart already agreed to pay $3.1 billion to end a set of lawsuits from states and tribes over opioid sales.

Trumplandia

• The name is Bond, 7-year Bond: The tug of war between Sec. Treasury Scott Bessent and Fed chair Kevin Warsh continues, with investors selling off bonds forcing central banks to raise interest rates, promising bigger future returns if investors will just give them enough money to service their national debts. And it's happening across the developed world: Europe, Japan and of course in the U.S. The reasons aren’t obscure: Ballooning government debt, tax cuts that reduce revenue, trade and competition policies that fuel inflation, massive AI-related investments that have sucked up spare cash, and a war in Iran that's raised the price of energy and hammered consumer and investor confidence in long-term stability. It has also given bond investors a lot of leverage to keep rates high and make larger profits, with yields on the 7-year U.S. Treasury bond at 4.79%, the highest since the Great Recession of 2008. “The confrontation between bond markets and policymakers is becoming a battle of attrition,” Geoffrey Yu, a strategist at BNY, wrote in a note on Tuesday. “Persistent inflation, fiscal concerns and energy risk continue to push investors to demand greater compensation.” There’s only one way out of this, and that’s for one of the two most powerful financial leaders in the world to play bad cop. Either Fed chair Kevin Warsh cuts interest rates, which could spur growth but boost inflation, or Treasury Sec. Scott Bessent gets the government (and Congress) to raise taxes and cut spending, which could cost his boss, President Donald Trump, in the midterm elections. If Warsh raises interest rates too high or too quickly to curb inflation, he could also push the economy into a recession. The next signal will come with the Consumer Price Index report on Sept. 11, and a decision could come September 16, after the Fed’s Open Market Committee meets to assess the data and decide on a rate change. Most investors expect him to raise rates by 0.25 percent this year, at some point, and see how things go. But he could need to raise them even higher. President Trump had criticized Warsh’s predecessor, Jerome Powell, for not lowering the rates fast enough.

• A profitable convention: What’s going on in Dallas? Right after Labor Day, top Republicans are meeting in the Dallas convention center for an unconventional mid-term convention, where President Donald Trump plans to rally the troops as Republicans fret about the midterms and the possibility of losing control of the House and possibly, also, the Senate. The meeting isn’t formally a convention (the RNC chair calls it a “Trumpapalooza”), so the party is not paying for it, raising the question of who is paying and what they will get for it. The Wall Street Journal saw some invitations—they’re offering a seat at a roundtable with Trump for $250,000, and a photo opp with the president for the precise sum of $88,600. JD Vance offers entry-level fees: $75,000 for a roundtable and only $35,000 for a photo. That’s less than a Subaru. A Trump-aligned superPAC, MAGA Inc., has more than $400 million in cash that it hasn’t spent on the midterms. And it’s not clear how many people are coming: The center can hold up to 21,000 people. Ticket prices have been cut from $5,000 to zilch, if you win a “lottery” being held by the organizers. One senses that the odds are good. Fox News reported that only 2,000 tickets had been distributed as of Thursday.

• Blame China: Forget Canada, this time 19 of the G20 nations’ finance ministers (including Russia—hold that thought) said China was the main factor blocking global growth, at least according to U.S. Treasury Sec. Scott Bessent, who wanted the nations to agree on plans for China to stop undercutting other countries’ production. “We believe that non-market-based economies pushing out a never-ending stream of cheap exports is not sustainable,” said Bessent. But China wouldn’t sign on to a U.S.-backed package of measures to slow those exports. Bessent didn’t discuss the U.S. national debt which last month hit $40 trillion, and falling prices and growing yields for U.S. government bonds. Russia’s finance minister made an unexpected, and apparently unwelcome, appearance at the invitation of the U.S., which hosted the meeting in Asheville, North Carolina. European finance ministers shunned Russia and refused to appear for a joint photo or statement, given the ongoing war in Ukraine.

• Here’s the Beef: With U.S. beef farmers facing an uncertain future as high prices discourage consumption and President Trump’s plan to import foreign ground beef threatens to undercut American ranchers, U.S. Agriculture Secretary Brooke Rollins unveiled a plan to help ranchers, but some ranchers said the plan would only hurt them. Relaxing slaughtering regulations could threaten the safety of the U.S. meat supply, small slaughterhouse owner Jim Hertzog told the New York Times. “We have the best and the safest beef in the world, and why in the world would you want to lift regulations to make it easier?” he asked.

• Tax collection turmoil: President Trump’s cuts to the IRS have had a predictable effect: Cutting 30% of the tax agency’s auditors has cut revenue from audits by 35% in fiscal 2025, to $6.5 billion. As the effects of the cuts roll through the agency, revenue is expected to decline further. While overall tax revenue grew last year along with the economy, to hit $5.3 trillion, most of it is in withholding from paychecks. Meanwhile, the IRS estimates that about $700 billion in taxes go unpaid every year.

Elon’s World

• Hey kids, let’s make turbines: You can say one thing about Elon Musk: When he sees a problem, he zeroes in on it. One chokepoint for AI expansion is energy, and while the big data centers all hope to run on solar and nuclear energy one days, right now they need natural gas, and there’s a shortage of the turbines that use natural gas to spin and turn generators. So Musk’s said last weekend he’ll use SpaceX $SPCX ( ▲ 6.42% ) to make turbine blades, finely machined steel parts, a shortage of which is part of the problem of getting data centers online  quickly. That’s an approach that worked when he needed rockets to get his Starlink satellites into space, but didn't do so well when he tried to cut government waste. The announcement had a predictable effect on turbine blademakers when markets opened Monday: Howmet Aerospace $HWM ( ▲ 2.77% ) fell more than 7% Monday, and Berkshire Hathaway’s $BRK.A ( ▲ 0.5% ) Precision Castparts and DPC $DPC ( ▲ 3.9% ) were also hit.

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Peter S. Green is a veteran reporter and editor who has spent more than two decades covering business and finance from Eastern Europe to New York City, and has worked for Bloomberg News, The New York Post, The New York Times and The Messenger. He lives in New York City and is always looking for the next big story. Email him here.