Political Beta

Conventional wisdom holds that investing and politics don’t mix, and more specifically that markets don’t care who is the U.S. president.

That view might be changing. The country is very politically divided, and some publicly traded companies have come out in support or opposition to comments and policies from the Trump administration.

One exchange-traded fund issuer says it’s time for a politically based investment methodology. Point Bridge Capital’s Point Bridge GOP Stock Tracker ETF (MAGA) tracks an index of 150 U.S. large-cap companies whose political action committees and employees donate money to or are very supportive of Republican party candidates. Or as the fund literature states, the fund is a way “to bring your Republican investment values to life.” It follows the equal-weighted Point Bridge GOP Stock Tracker Index, which is rebalanced quarterly and reconstituted each June following the completion of an election cycle.

The fund began trading in September 2017 and had roughly $17 million in assets under management as of this year’s first quarter. MAGA was up 14.4% through March, which nearly regrouped its 14.7% loss last year. In comparison, the SDPR S&P 500 ETF Trust (SPY) was up 13.5% this year and down 4.6% last year.

Hal Lambert, founder of Point Bridge Capital and a big donor to Texas GOP candidates, says the idea came after he heard about retailer Target’s 2016 decision to allow transgender customers to use bathrooms or fitting rooms that match their gender identity. He considered that a political move.

Although socially responsible investing is becoming more popular, he regards that as politically left-leaning. Lambert wanted an investment allowing “people more on the right side of things to do something similar, to basically put their money where their viewpoint is.”

So he created a rules-based methodology for stock selection, basing his index on political action committee donations. This takes his own personal viewpoint out when defining what conservative is, Lambert says. He culled individual companies’ political contribution data from the Federal Election Commission to build the index, which he calls “political beta.” To be eligible, companies must have donated at least $25,000 over the last two election cycles, and they are then ranked by the total net dollars and the net percentage of dollars given to Republicans instead of Democrats.

MAGA recently was weighted to industrials (23%), financials (18%) and energy (15%), giving it a large-cap value style tilt, Lambert says. Conagra Brands, Devon Energy and AutoZone were the recent top three holdings at just under 1% each. The fund has very little technology exposure since most tech companies donate to Democrats, he adds.

MAGA’s expense ratio of 0.72% is pricey, even for a principles-based fund, let alone a large-cap value-focused fund. But Lambert doesn’t think the high fee is a detraction for someone who wants to concentrate on Republican-leaning companies. Because of its equal weighting, he also doesn’t think it has too much overlap with other large-cap funds.