To me, this is a very strange basis for making an investment — it might satisfy an emotional need, but not a financial one. In fact, as we showed earlier this year, the companies that Trump trashed did much better than the ones he liked.
The knee-jerk response will be, What about environmental, social and governance investment products. The short answer is that the first and third parts of ESG, environmental and governance, have a correlation with better performance. The underlying basis of environmental investing is that companies with less exposure to environmental volatility and associated costs tend do better; on governance, diverse leadership is associated with less groupthink and better decision-making. No such correlation has been shown for social investing; similarly, an inverse correlation seems to exist for political investing.
If you want to invest from a political angle, the closest thing I have found to a rational basis is the Life + Liberty Emerging Markets Index, which says it incorporates “human and economic freedom metrics as primary factors in our investment selection process.” The idea behind the Life + Liberty index, which will introduce an ETF in 2019, is that “freer” markets experience more sustainable growth, and attract, retain and allocate capital more efficiently than countries with unfree.
Politics and religion are both unavoidably emotional. That is why they tend to be bad for your investment returns. If you are worried about your mortal soul, try to be a nicer person, and pick up karma points where ever you can — preferably not when making investment decisions.
This column was provided by Bloomberg News.