Political ETFs in the Spotlight: A 2024 Election Trading Perspective
As the 2024 U.S. presidential election looms, ETF investors are increasingly curious about aligning their stock portfolios with their political views. However, a leading ETF analyst cautions against mixing politics and investments, highlighting that such strategies could be costly.
Political-themed exchange-traded funds (ETFs) have seen notable performance in 2024. The Democratic Large Cap Core ETF (DEMZ), tracking large U.S. companies that have historically contributed significantly to Democratic PACs or candidates, has surged 14.4% year-to-date, outpacing the S&P 500’s 13.2% gain, as per FactSet data.
Conversely, the American Conservative Values ETF (ACVF), which focuses on firms aligned with conservative values, has also performed well, climbing 12.4% so far in 2024, according to FactSet.
Additionally, politically themed funds tracking the investment activities of Congress members have garnered attention. The Subversive Unusual Whales Democratic Trading ETF (NANC) and the Subversive Unusual Whales Republican Trading ETF (KRUZ) mimic the stock trades of Democratic and Republican Congress members, respectively. These funds, launched in February 2023, are based on the notion that lawmakers might have access to insider information, giving them an edge in stock trading, says Zachary Evens, a manager research analyst at Morningstar Research Services.
However, Evens remains skeptical about the potential for these funds to outperform the market consistently. Despite this skepticism, NANC and KRUZ have posted gains of 15.7% and 9% respectively, compared to the S&P 500’s 13.2% rise and the Nasdaq Composite’s 14.5% increase, as per FactSet data.
Political ETFs: What’s Inside and How Much They Cost
Political ETFs may seem appealing, offering a chance to invest in alignment with one’s values or the trades of savvy lawmakers. However, Evens warns that these are “pure speculation vehicles” lacking traditional investment research foundations. Investors should thoroughly understand the stocks within these funds, their construction, and performance drivers before investing.
Interestingly, the holdings of these ETFs often overlap significantly, regardless of their political leanings. For instance, Nvidia Corp. (NVDA) is a top holding in both NANC and KRUZ, while Microsoft Corp. (MSFT), Costco Wholesale Corp. (COST), and Nvidia appear among the top holdings in both DEMZ and the Republican-focused ACVF.
Evens emphasizes that it is not the political regime but the individual performance of the underlying stocks that drives returns. Additionally, these thematic ETFs come with higher fees: NANC and KRUZ charge 0.75%, while DEMZ and ACVF charge 0.5% and 0.8% respectively. In comparison, traditional ETFs like the SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust Series I (QQQ) have fees of less than 0.1% and 0.2%.
The Investment Acumen of Congress Members
The 2012 STOCK Act prohibits Congress members from trading based on privileged information and mandates public disclosure of trades within 45 days. However, this delay often renders the information less valuable to retail investors. Furthermore, growing bipartisan support for banning stock trading among Congress members could impact the prospects of funds like NANC and KRUZ.
On July 24, the Senate Committee on Homeland Security and Governmental Affairs approved a bill to ban stock trading by Congress members, their spouses, and dependents. This marks the first time such a ban has advanced past a Senate committee, moving it closer to becoming law.
ETF Performance Snapshot
For traders seeking the latest performance data, here’s a quick look at top and bottom-performing ETFs over the past week:
Top Performers
- YieldMax COIN Option Income Strategy ETF: +5.9%
- CoinShares Valkyrie Bitcoin Fund: +3.3%
- ProShares Bitcoin Strategy ETF: +3.3%
- iShares Bitcoin Trust Registered: +3.3%
- Fidelity Wise Origin Bitcoin Fund: +3.3%
Bottom Performers
- YieldMax TSLA Option Income Strategy ETF: -11.7%
- Invesco PHLX Semiconductor ETF: -6.2%
- iShares Semiconductor ETF: -5.8%
- VanEck Semiconductor ETF: -5.7%
- First Trust Nasdaq Semiconductor ETF: -5.4%
New ETF Launches
Recent ETF launches include BlackRock’s iShares U.S. Manufacturing ETF (MADE) and Kurv Investment Management’s Kurv Technology Titans Select ETF (KQQQ). YieldMax also introduced the YieldMax Short NVDA Option Income Strategy ETF (DIPS), focusing on a covered put strategy on Nvidia.
Conclusion
Political-themed ETFs offer an intriguing yet speculative approach to investing. With significant fees and potential legislative changes on the horizon, investors should carefully consider the fundamentals and market conditions before diving into these funds.
Key Takeaways
- Performance: Political ETFs have shown strong YTD performance, but their success depends more on individual stock performance than political alignment.
- Fees: These ETFs have higher fees compared to traditional ETFs.
- Legislation: Potential bans on congressional stock trading could impact the future of ETFs tracking lawmakers’ trades.
