And by one measure, that appears to be the case. According to the ETF Research Center’s fund overlap tool, MAGA has a 27% overlap by weight with SPY. Overlap by weight is the percentage of a portfolio that’ll provide identical returns with another portfolio. In the case of MAGA and SPY, it’s the other 73% of MAGA’s portfolio where it has the opportunity to provide alpha and earn its fee.
Elsewhere, MAGA has a 30% overlap with the Invesco S&P 500 Equal Weight ETF (RSP) and a 28% overlap with the Schwab Fundamental U.S. Large Company Index ETF (FNDX), a large-cap equal-weight value fund.
Rather than calling it a socially responsible fund, Lambert terms it politically responsible investing, although he says the industry may consider MAGA a thematic fund.
There aren’t too many other funds like MAGA in the ETF ecosystem. Two political policy-themed funds by EventShares, the Democratic Policies Fund (DEMS) and the Republican Policies Fund (GOP), which launched right after MAGA, were shut down last year. One EventShares fund that continues to trade is somewhat similar to MAGA—the EventShares U.S. Policy Alpha ETF (PLCY), an actively managed, total-market fund that looks for changes in U.S. government regulations, trade policies and fiscal spending as a basis for the companies that it invests in. PLCY used to trade under the name U.S. Tax Reform Fund (TAXR). It debuted in October 2017 and recently had $18 million in assets and a net expense ratio of 0.85%. It was up 11% through this year’s first quarter, and it fell 10.7% last year.
Ben Phillips, chief investment officer at EventShares, emphasizes that PLCY is not a political fund and notes that legislative policy doesn’t equal politics. “We’re politically agnostic,” he says. “It doesn’t matter who is in Congress; there are policy catalysts created year in, year out.”
He says PLCY is based on a 2013 academic research paper from Harvard University called “Legislating Stock Prices.” The paper worked under the assumption that legislators are privy to more insight and data on the companies they are legislating than other players in the market. It studied the impact that legislation had on stocks over 20 years and found that industries it classified as beneficiaries of legislation saw significantly more positive earnings surprises and positive analyst revisions in the months after the laws were enacted, along with significantly higher future sales and profitability.
Phillips says financial advisors told him they liked the idea of policy-based funds like TAXR, but they shied away from the DEMS and GOP funds.
“They were saying, ‘You know, I love it. I get it. But I’m never going to put a client in it; it’s too political. If they’re having a bad day and they see a ticker on their account that they don’t like, I could lose that client,’” Phillips says.
Rather than have separate GOP and DEMS ETFs that focus on policies favored by the two political parties, he revamped the idea of policy-driven ETFs by rolling together the themes from GOP, DEMS and TAXR to create PLCY, which considers overall congressional legislation and isn’t specific to one party or another. PLCY is considered a mid-cap growth core fund in the Morningstar style box, and it has very little overlap with top mid-cap funds such as the iShares Core S&P Mid-Cap ETF (IJH), with which it has only a 4% overlap by weight, and the Vanguard Mid-Cap ETF (VO), with an overlap of just 9%.
Does the idea of politically themed investing have a future? Maybe, says Paul Weisbruch, head of ETF/options sales and trading at Esposito Securities. At the very least, he says, with the growth of thematic investing, the concept is probably better embraced than it would have been five or 10 years ago.