While some investors like to think a company has sole control of their destiny, most wise investors know that outside factors do play a large role in whether a company will succeed or fail, both in the short and long run. Politics may be one of, if not the strongest outside forces that can affect a company’s long-term prospects.
A perfect example of this is playing out right now with the tariff wars raging between the USA and the rest of the world. US steel and aluminum companies seem to be poised to have a decent future as high tariffs are now being placed on imported metal. This is all being sold by the politicians to ensure national security. The idea is that without a steel and aluminum industry, the nation would be at risk if a major war were to break out and there was a shortage of materials.
The tariff’s being placed on imported metals is aimed to help keep US steel and aluminum producers in business. It would appear as of now that this industry and these businesses are certainly benefiting from the Republican’s in the White House.
But, some people believe that’s not the only industry which benefits from the current political leadership. There are currently several Exchange Traded Funds which have been built around industries that may prosper due to the policies being put in place by the current Republican-controlled White House and Congress.
The first ETF I would like to point out is the EventShares U.S. Policy Alpha ETF (PLCY). This fund takes both long and short positions in companies that the fund managers believe will see a change in value based on government regulation, trade policies, and fiscal spending. Specifically, the fund managers look at government actions that could impact spending, defense, healthcare, trade agreements, tariffs, industry regulations, environmental issues, and taxes.
The fund will hold between roughly 50 to 100 equities at any given time, but currently only has 46 positions. Its inception date was 10-17-2017, which could be why the fund has less than its target number of positions. It also has an averagely weighted market cap of $14.29 billion with just over $11.5 million in assets.
PLCY has an expense ratio of 0.85%, which is high, but given the that it is an actively managed fund, it is not absurdly high. It also currently does not pay a yield, but certainly could in the future. Before April 19, 2018, PLCY traded under the ticker TAXR and was mainly focused on organizations which would benefit from the recent tax reform.
Another fund is the Point Bridge GOP Stock Tracker ETF (MAGA). MAGA is a fund which has been built based on US large cap companies whose employees and political action committees have supported Republican political candidates. The screening process consists of finding campaign contributions which meet a certain threshold over the last four years based on data proved by the Federal Election Commission. Companies are then ranked based on total net dollars and percentages given to both Republican Party candidates and Democratic Party candidates. The top 150 companies are then purchased and held within the fund.
MAGA has an expense ratio of 0.72%, which again is expensive, but considering the very focused nature of the fund, is not ridiculously high. The fund currently has almost $39 million in assets under management, a weighted average market cap of $50 billion, currently does not have a distribution yield, and a large percentage of its top ten holdings are energy (oil and gas) companies. It is a new fund, the inception date of September 7th, 2017, so it’s safe from closure for at least another six to twelve months.
While the two ETFs mentioned above have direct relationships with politics, something like the PowerShares Solar Portfolio ETF (TAN) can also be an investment play based on politics. With the recent ruling from the state board in California, a political body, approving the proposal to require all new homes built in 2020 and beyond have solar panels, it is easy to see how TAN and its holding will very much be affected by the decisions being made by politicians. Furthermore, many believe other states will adopt similar statues in the coming years.
The solar industry is just one recent example, the political battle for and against fossil fuels has been raging for decades, just to mention another industry. The point is, if you follow politics, investment opportunities shouldn’t be too difficult to find.
The biggest risk to all three of these ETFs is a major change to current political policies. That would most likely come from the national level with the Democrats taking control of the Senate, House of Representatives or the White House. Since Presidential Elections only happen every four years, a change in the White House isn’t a concern for another few years, but a change in Congress could happen much sooner. Anyone investing in these ETFs needs to keep an eye on what’s happening in the political landscape and adjust their holding accordingly.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any equity mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
market needs to crash first
Tim I would agree the market is "due" for a correction in terms of how long we have gone without a meaningful downturn. But you need to remember, and history has certainly proven, that irrational behavior can persist longer than what may be considered rational.