The Meritocracy Playbook: How Anti-DEI Shifts Are Reshaping Equity Markets

The U.S. corporate landscape is undergoing a seismic shift. With federal and state policies dismantling diversity, equity, and inclusion (DEI) initiatives, a new breed of equity funds is capitalizing on the rise of merit-based hiring. At the forefront is the Azoria 500 Meritocracy ETF (SPXM), which promises to outperform traditional benchmarks by excluding S&P 500 firms that enforce racial or gender quotas. This article explores how regulatory and cultural trends are reshaping investment opportunities—and why investors should pay attention.

The DEI Dilemma: Regulatory Rollbacks and Market Realities

The Trump administration's 2025 executive orders marked a turning point. By mandating a “colorblind” approach to federal hiring and contracting, the policies pressured private companies to rethink DEI programs. States like Utah, Florida, and North Dakota followed suit, banning diversity statements in hiring and defunding DEI offices. This regulatory push aligns with a broader cultural shift: a Pew Research poll shows that while 52% of Americans still view DEI programs as beneficial, criticism has grown, particularly among conservatives who see them as divisive.

The result? Companies are now caught between compliance risks and shareholder demands. Those clinging to quotas—like Starbucks, criticized for its 30% racial diversity target in corporate roles—have faced operational headaches and underperformance.

Azoria's Case for Meritocracy: Data-Driven Outperformance

The Azoria fund's thesis is straightforward: companies that prioritize individual merit over identity-driven quotas will outperform. Its exclusion criteria—removing S&P 500 firms with explicit diversity quotas—have already yielded results. A portfolio of 30+ such companies returned just 12% year-to-date in 2025, versus the S&P 500's 30%. Over three years, the underperformers delivered 17%, compared to the index's 60%. Starbucks, emblematic of this trend, saw its stock rise only 12% over five years, lagging the S&P's 100% gain.

The fund's focus on merit-based practices is backed by academic research. A 2023 study in Human Resource Management found that firms with robust talent development programs (a hallmark of meritocracy) retained employees longer and achieved higher profitability. Similarly, a 2021 Namibia University study showed that aligning talent management with retention strategies reduced turnover—a critical cost-saver for corporations.

Sector Spotlight: Tech and Finance as Meritocracy Strongholds

While Azoria's sector allocations aren't explicitly detailed, its exclusion criteria disproportionately impact industries with high DEI adoption. Technology and finance—sectors historically built on performance-based hierarchies—could be key beneficiaries.

• Tech: The sector's reliance on skill-driven innovation makes it a natural fit for meritocracy. Companies like Google or Microsoft, which emphasize coding prowess over demographic targets, may thrive under SPXM's lens.
• Finance: Banks and asset managers, long governed by performance metrics like revenue per employee, may also outperform. Excluding firms with rigid diversity quotas could filter out inefficiencies linked to non-meritocratic hiring.

Risks and Considerations

The strategy isn't without pitfalls. Legal challenges loom: critics argue that DEI policies combat systemic inequities, and their removal could worsen diversity gaps. A 2024 study in Organizational Behavior and Human Decision Processes noted that merit-based systems can inadvertently favor privileged groups if unconscious biases aren't addressed. Additionally, public backlash could pressure companies to reinstate DEI programs, undermining the fund's exclusions.

Investment Play: Meritocracy as a Long-Term Bet

For investors, Azoria's ETF offers a compelling vehicle to bet on the “meritocracy wave.” The fund's active management—re-including firms once they abandon quotas—provides flexibility. Sector-wise, tech and finance exposure (via SPXM's implicit allocations) positions investors to capitalize on industries where skill trumps identity.

Consider pairing SPXM with direct investments in companies that have already embraced merit-based practices. For example, Amazon (AMZN), which recently scaled back DEI initiatives, or Goldman Sachs (GS), which has emphasized performance metrics, could be beneficiaries of this trend.

Conclusion: The Meritocracy Premium

The Azoria Meritocracy ETF isn't just a fund—it's a bet on a cultural realignment. As DEI policies face sustained pressure, companies that prioritize individual excellence over quotas may carve out a “meritocracy premium” in shareholder returns. For long-term investors, SPXM offers a way to align with this shift while targeting sectors—tech and finance—that stand to gain most. The question isn't whether meritocracy will shape markets; it's already doing so. The next move is yours.