An investment fund designed just for Gen Z
The headlines screamed about a year ago as the younger generation embraced the democratization of the Wall Street movement, using RobinHood and other trading apps to generate wild swings in stocks such as GameStop and AMC.
If members of Generation Z — ages 18 to 26 — were looking for new ways to make a statement in stocks, they now have one. It’s the Generation Z Exchange Traded Fund, which was launched on the Nasdaq in mid-December. It now has about $4.5 million in assets under management in stocks such as Tesla, Amazon, Snap, Shopify and Teladoc Health.
Will the fund capture a large enough share of Gen Z customers to make a difference? And will the new fund have a broad enough portfolio to churn out favorable returns over the long haul?
After all, Gen Zers are commonly defined as being financially minded, shrewd consumers who tend to do their own product or investment research. In other words, they might prefer to buy and sell stocks that encompass their core values and interests instead of relying on an investment firm to pick for them.
That’s a challenge facing Julian Feder, who as a high school student envisioned starting the exchange-traded fund focused on the tastes of Generation Z. He acts as a research advisor to the fund along with fellow teen Eitan Prins-Trachtenberg. Julian’s father and Wall Street veteran, Leonard Feder, leads the portfolio management team.
Like most of Wall Street, the Gen Z fund (ticker symbol ZGEN) was down about 20% through the first two months of 2022.
The fund restricts itself to buying only companies that have held initial public stock offerings since 1997.
Fund managers use four metrics to identify companies that align most with Generation Z, such as how closely the company fits with Gen Z’s “progressive values,” how much a business is “dedicated to improving its product or service,” and a “disruption score that evaluates how well a company is positioned to continue growing in its industry and displace competitors.”
The fund has a pool of about 50 stocks that are deemed to represent the interests of Generation Z. Not surprisingly, about 60% of the fund’s portfolio is focused in technology and communication services.
The stock picking methodology can be a bit of a slippery slope. Take Amazon, for example. While the tech behemoth is the “go-to” for shopping, streaming and other consumer services, its track record for treating warehouse and distribution center workers has been much criticized. Yet, Amazon was the second-largest holding in the fund through February.
The Generation Z fund is not the only exchange-traded fund with a generational theme.
The Global X Millennial Consumer ETF and the Principal Millennials ETF were both launched in 2016. Then there’s the Global X Aging Population ETF, which aims for the aging baby boomer generation and beyond.
In addition, so-called socially conscious funds are another option for young investors seeking to invest in companies that promote ethical or socially conscious business practices. Fidelity, for example, in February launched the Fidelity Sustainable Multi-Asset Fund, which invests in companies that support environmental, social and corporate governance best practices.
Beyond the marketing hype, parents, this is an opportunity to remind your young investor that the goal of any investment is to generate higher returns and invest for the long term. Make sure your teen understands what he or she is buying, and that there are risks.
Even in this tech-driven age, the old investment rules still apply.