Wall Street is good at creating an investment product for every niche, including some that don’t need to be filled.
If you’re a progressive on issues such as climate change and gay rights, dozens of socially conscious mutual funds are eager to invest your money in line with your views. And, as if to prove there’s a yin for every yang, a few conservative money managers have launched exchange-traded funds for people whose political hero is Donald Trump.
One of them, the Point Bridge GOP Stock Tracker ETF, trades under the symbol MAGA, echoing Trump’s “Make America great again” slogan. Another, the American Conservative Values ETF, dumped Coca-Cola and Delta Air Lines shares in April after those companies spoke out against a Georgia voting law.
The portfolios tend to be light on technology — Alphabet, Apple, Amazon and Facebook are all on the American Conservative Values fund’s boycott list — and heavy on traditional industries such as banking and natural resources. The MAGA fund’s top holdings, for example, include Marathon Oil and Goldman Sachs.
“What you have is high turnover and vague reasons for buying a particular stock,” said Juli Niemann, an analyst at Smith Moore & Co. in Clayton. “Who’s really making money on these funds? It’s always the originators and packagers.”
All four conservative funds have outperformed the broad market this year. Their tech-light approach is working well at the moment, but that doesn’t make it a good long-term strategy.
Larry Swedroe, chief research officer at Buckingham Strategic Wealth, said he would give the same advice to MAGA investors as to their progressive counterparts: “There is a price to pay for expressing your views, and it comes in lower expected returns.”
Some people may be willing to pay that price, but they shouldn’t expect to beat the market by taking a political stance. Even if other investors agree with them, and bid up their favored stocks in the short run, they won’t change the companies’ earnings potential. Once the stocks become richly priced relative to fundamentals, they’ll start to underperform.
“Wall Street is great at creating demand for products that shouldn’t exist,” Swedroe said. “If they thought people would buy tulip bulb ETFs, they would create some of those.”
One could, perhaps, make a case for anti-woke investing if the funds concentrated on “sin” stocks that are often shunned by socially conscious investors. These stocks — including casinos, tobacco firms, and gun makers — tend to be cheap and tend to outperform over time.
That doesn’t seem to be the conservative funds’ approach, however. Microsoft, the No. 1 holding of American Conservative Values, is also the biggest investment for Parnassus Core Equity Fund, which picks stocks using environmental, social and governance principles.
The conservative funds are small, but some have grown rapidly this year. Some, such as the 2nd Vote offerings, base their investments partly on where companies make political contributions. That may help your favorite politician, but it probably isn’t going to help your portfolio.
“Politics and religion really don’t mix well with investing,” Niemann said.
A politically oriented fund promoter is counting on people to make emotional decisions, not rational ones. A successful investor needs to do the opposite.