Ever since mutual funds and more recently, ETFs were created, there has been a flood of new funds and ETFs being launched almost every month. Many fade away after a few years due to poor performance but that has not stopped asset managers from launching new products to attract new money.
The latest is an ETF with ticker: MAGA – standing for Make America Great Again. Ignoring all the metrics an investor would use i.e. growth, profit, attractive P/E etc., this ETF invests in companies that are loyal to the President’s party. The asset manager makes his selection purely based on public information on companies’ donations to the Republican Party, its candidates and their political action committees. Clearly appealing to the political right just as ESG (Environment, Social and Governance) products is aimed at people who left leaning, MAGA hopes to attract money from people who invest based on their political ideology rather than fundamental analysis.
The launch of the MAGA ETF follows similar ETF products that invest in companies that are biblically responsible, combat climate change, avoid arms dealers, avoid tobacco companies etc. The question is, if any of these investments appropriate for the average investor?
Future Wealth’s View
The main problem with these highly focussed funds and ETFs, whether we agree with premise of their mission or not, is that they tend to ignore large chunks of the market. The MAGA fund allocates only 0.6% of its assets to technology stocks as most technology companies are either left leaning or donate more to democratic causes than republican agendas. The S&P 500, on the other hand, has a 25% technology weighting. And then, there is confusion on the selection of investments itself. What if there is a company that donates heavily to republican causes but supports gun control and abortion rights? Is there a place for that company in the MAGA ETF?
The other factor that is concerning with these exotic investment products is the expense ratio. The MAGA ETF charges 0.72% of assets while the S&P 500 ETF charges only 0.04%. The difference (0.68% of assets) over a period of time begins to have a significant impact in the investors’ return, especially if MAGA’s performance does not consistently beat the return of the S&P 500. All that said, MAGA has been able to attract $39 million in new money in the short time since its launch and in a highly polarized political environment could well see further inflows of money in the coming months.
One of the cardinal rules of investing is to set aside one’s emotions when making investment decisions. These new products seem to be turning the age old rule on its head by suggesting that one put investment analysis aside and rather invest based on one’s ideology and emotions. Can MAGA (Make America Great Again) create MIRA (Make Investors Rich Again)? We are not so sure.