How DEI Hiring Targets Hurt Stock Returns
July 8, 2025
Executive Summary
There are 37 companies in the S&P 500 that have DEI hiring targets, or explicit, quantitative goals for employee racial and gender representation. Together, these 37 companies have underperformed the S&P 500 Index by a staggering 19 percentage points over the last two years and 9.4 percentage points over the last year. We at Azoria call this persistent underperformance the “DEI drag.”
These three-dozen companies span 26 different industries, from railroads to software. They employ over 2 million people, and have a combined market cap of $2.6 trillion. Despite their differences in products, services, and markets, they share one critical flaw: they reject meritocracy in favor of DEI hiring targets.
This report attempts to explain why the “DEI drag” exists and what investors can do to remove it from their portfolios.
There are Three Mechanisms by which DEI Targets Hurt Stock Returns
- They Prevent Companies from Hiring the Best Talent
- They Encourage Companies to Hire Not-Yet-Qualified Candidates
- They Disrupt Workforce Cohesion and Belonging.
Mechanism 1: DEI Targets Prevent Companies from Hiring the Best Talent
DEI targets compel companies to hire talent not based on skill and merit, but on race and gender, therefore limiting companies from hiring the best.
Let’s look at how Nike, one of the 37 S&P 500 companies with DEI targets, does this:
Nike: “By 2025, Nike…targets 35% representation of racial and ethnic minorities in its U.S. corporate workforce…”
With this DEI hiring target, Nike must choose between one of the two opposing approaches.
A: Hire so that 35% of its corporate workforce are racial and ethnic minorities.
B: Hire the best talent from all walks of life.
Nike has chosen “Approach A,” forcing itself to overlook upwards of 70% of the U.S. population.
Consider, for example, a highly qualified white female—Stanford graduate, five years of experience at a fast-growing startup, and a proven track record of designing athletic apparel.
Her experience would likely make her a top contender at Nike except for the fact that white women are not deemed racial and ethnic minorities. Because her candidacy does not help Nike reach its DEI hiring target, her chances of being hired plummet.
The effect of not hiring one qualified employee is surely negative, but in all honesty, likely trivial. The effect, however, of not hiring hundreds (or even thousands) of employees is disastrous beyond comprehension. It means Nike and companies like it will be permanently separated from great talent and the ideas, innovation, and perspective these employees would have brought. That permanent separation might have something to do with the fact that Nike has failed to meaningfully innovate and compete in the past five years, which is perhaps best reflected in Nike stock having underperformed the S&P 500 by a whopping 48 percentage points in just the past twelve months.
Nike is not alone: More than half (57%) of S&P 500 stocks with DEI hiring targets underperformed the S&P 500 in the two year period after adopting these targets. Of the underperformers, the average margin of underperformance was a staggering 34 percentage points.
DEI targets → Highly Qualified Candidates Overlooked → Weaker Internal Teams → Missed Opportunities / Fewer Innovations → Lower Revenue and Earnings Growth → Stock Underperformance
Mechanism 2: DEI Targets Encourage Companies to Hire Not-Yet-Qualified Candidates
Nike’s DEI targets encourage it to hit numerical representation goals based on race and gender. When there are not enough qualified candidates in a given race or gender to hit a company’s DEI hiring target, Nike must then hire candidates who are not yet qualified in order to meet its self-imposed goals.
Because of the qualification mismatch, these newly hired, underqualified employees undercut productivity and weaken the operating leverage that drives Nike’s long-term returns.
A workforce comprised of underqualified candidates—even in the low single digits as a percentage of the company’s total workforce—can result in slower execution of essential tasks, higher error rates, and more oversight required from senior leaders, pulling them away from higher-level responsibilities. This weakens productivity, lowers output, and ultimately reduces the company’s revenue and earnings, driving stock underperformance.
What’s incredible is that markets appear to grasp this concept fully—not just punishing the stocks of companies that adopt DEI hiring targets, but rewarding them when they drop them. Our research found that on average, companies saw their stocks go up 3.8% in the 30 days after abandoning their DEI hiring targets (compared to the S&P 500 average monthly return of 1.24%), further evidence that markets recognize the negative drag of DEI targets and are quick to positively reprice companies that abandon them.
DEI targets → Hire Candidates Who are Not-Yet-Qualified → Slower Execution / More Errors / Increased Oversight Burden → Lower Productivity and Output → Reduced Earnings → Stock Underperformance
Mechanism 3: They Disrupt Workforce Cohesion and Belonging
When hiring decisions are publicly associated with a DEI target, qualified hires begin to question whether they earned their job on their merits or whether they were simply hired to meet their company’s DEI hiring target.
As one black engineer at Meta (which fortunately abandoned its DEI targets in January 2025) put it: “It always bothered me that people would think I was here because of DEI, not because I am qualified.”
Here’s the truth: DEI targets fuel imposter syndrome, increase workplace anxiety, and lower workplace belonging — an essential driver of performance.
Research from Harvard Business Review shows that high workplace belonging is linked to a 56% increase in job performance, a 50% drop in turnover risk, and a 75% reduction in sick days.
The opposite is presumably true, as well: low workplace belonging is linked to a decrease in job performance, an increase in turnover risk, and an increase in sick days. None of these are good for a company’s top line, bottom line, and consequently, long-term stock returns.
DEI targets → Qualified Employees Question Whether They Belong → Workplace Belonging Declines → Lower Job Performance / Higher Turnover / More Sick Days → Reduced Output Lower Earnings → Stock Underperformance
How to Remove the “DEI Drag” From Your Portfolio
As discussed, the “DEI drag” represents the persistent negative underperformance of companies with DEI hiring targets. To remove this drag from your investment portfolio, we believe investors have two choices:
1. Neutralize Exposure by Shorting Companies with DEI Targets
Investors can ask a trusted financial advisor to identify and individually short the 37 companies within the S&P 500 that have explicit DEI hiring targets. This strategy is not designed to profit from stock declines, but to neutralize exposure to these companies since they are still held long through a standard S&P 500 ETF. A complete list of these companies is provided in the appendix for your convenience.
2. Buy the Azoria 500 Meritocracy ETF (ticker: SPXM)
A more streamlined approach involves replacing your existing S&P 500 ETF with the Azoria 500 Meritocracy ETF (ticker: SPXM). SPXM invests exclusively in S&P 500 companies that do not have DEI hiring targets.
It’s designed to both exclude the companies with DEI hiring targets, and reallocate those dollars into the remaining 463 merit-based companies that hire the best and brightest without apology.
The result: investors in SPXM will have bigger stakes in companies like Nvidia and Tesla and zero stake in companies with DEI hiring targets.
About SPXM: The Azoria 500 Meritocracy ETF (ticker: SPXM) begins with an initial universe of the 500 largest publicly traded U.S. companies by market capitalization. Azoria then applies a proprietary research methodology to evaluate whether each company has publicly disclosed an explicit quantitative demographic hiring target, goal, quota, or aspiration. Companies that have disclosed such policies are excluded from the ETF’s portfolio.
About Azoria: Azoria is an American investment firm founded by James T. Fishback, who previously served as an advisor to the Department of Government Efficiency (or DOGE) and prior to DOGE was the Founder and Chief Investment Officer of Macrovoyant, a global macro hedge fund. Azoria’s mission is to generate positive returns for investors through a commitment to free thinking, excellence, and meritocracy. Learn more at investazoria.com.
Appendix – Stocks Excluded from SPXM as of July 8, 2025
Click here for SPXM holdings. Please note that holdings are subject to change without notice.
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