Jan 15, 2021 - Economy & Business

Politically-based investing eyes an opening

Dollars flowing in different directions
Illustration: Aïda Amer/Axios

Those betting that people want to align stock investments with their political views saw a huge opening this week.

Why it matters: Much of corporate America is at least temporarily turning off the political donation spigot. But who they supported was pushed into the mainstream like never before in the wake of the Capitol mob attack.

  • "The world now is paying a lot more attention” to where companies give politically, Jason Britton, CEO of Reflection Asset Management, tells Axios.

Enter two ETFs — tickers "MAGA" and "DEMZ" — designed to invest in which corporations overwhelmingly give to either Republicans or Democrats.

  • DEMZ, launched by Britton on Election Day, tracks companies that have given on average at least 75% of corporate or employee political contributions to Democratic PACs or candidates in the past three cycles.
  • Among its 50 components: Apple, IBM, Disney and M&T Bank.

MAGA is just the opposite, leaving it overly exposed to GOP favoring industries (oil & gas, for one).

  • "I've had more interest in the last few weeks than I had previously," Hal Lambert, a Trump supporter who created the MAGA ETF in 2017.
  • "People are upset about basically canceling President Trump, and they're upset about the election."
  • (No, he's not considering changing the Trump-influenced ticker, at least for now — despite a swift turn away from Trump.)

Yes, but: Both MAGA and DEMZ have seen only a slight uptick of activity in recent days, according to FactSet data.

  • And they are a tiny sliver of the massive ETF market: MAGA has just over $10 million assets under management — and charges $7.20 annually for every $1,000 you invest.
  • DEMZ has 1/5 of that amount under management, with an expense ratio of 0.45%.

By the numbers: MAGA ETF investors missed the Big Tech run-up that’s led the market higher. It has little exposure to technology companies, which tend to lean Democratic in their political donations.

  • It’s never beat the S&P 500 on an annual basis.
  • DEMZ launched two months ago, but it would have outperformed the S&P every year since 2016, according to a backward-looking price return analysis by S&P Dow Jones Indices.
Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

What to watch: The pause in political donations could muddle the makeup of the ETFs, depending on how and when companies move forward.

  • By Britton's count, Alphabet is the only DEMZ component that’s paused donations across the board.

There could be an effect for the MAGA index down the line, thanks to some companies blacklisting GOP members who voted against election certification.

  • Charles Schwab, a MAGA component, is ditching its PAC altogether.

Worth noting: Other politically focused ETFs — “GOP” and “DEMS” — closed in 2018, just one year after launching.

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