Partisan ETFs have lagged the overall market
Investors who focus solely on red or blue can miss out on the green.
Is Kimberly Clark a Republican company or a Democratic one?
I ask because the stock of this consumer-products company is currently owned both by Republican-leaning ETFs as well as Democratic-leaning ETFs. The following are three partisan ETFs that, according to LSEG data, currently own Kimberly Clark $(KMB)$:
-- The American Conservative Values ETF ACVF, which "exclude[s] companies perceived to be most hostile to conservative values." According to the fund's website, it is based on the "conviction that politically active companies fail to maximize their shareholder returns "
-- The Democratic Large-Cap Core Fund DEMZ, which "only [invests in] ... companies that have made over 75% of their political contributions to Democratic causes and candidates."
-- The Truth Social America First ETF MAGA, which invests in "150 companies from the S&P 500 Index whose employees and political action committees (PACs) are highly supportive of Republican candidates." Note that this ETF used to be called the Point Bridge GOP Stock Tracker ETF.
In addition to Kimberly Clark being owned by all three ETFs, there are more than two dozen stocks jointly owned by the conservative-leaning ACVF and liberal-leaning DEMZ.
Some might argue that this joint ownership means that making money is trumping political loyalty on Wall Street. I am inclined to reach a more cynical interpretation, however.
Though these ETFs aim to provide S&P 500-like performance, their political branding allows them to charge a higher expense ratio than if they were explicitly marketed as broad-market index fund. Their expense ratios range from a low of 0.45% for the Democratic Large-Cap Core Fund to a high of 0.75% for the American Conservative Values ETF. It's doubtful that any of these three ETFs would be profitable for their sponsors if their expense ratios were as low as the 0.03% fee charged by the Vanguard Morningstar Total Stock Market ETF VTI.
In support of this cynical interpretation, consider that all three ETFs are highly correlated with the S&P 500 SPX. The correlation coefficients between these ETFs' monthly returns over the past five years and those of the S&P 500 range from a low of 93% to a high of 98%. One could argue that these specialty ETFs are little more than expensive index funds.
Not only are they expensive, they haven't outperformed a simple buy-and-hold strategy. This is illustrated in the above chart, which compares each of these ETFs to the S&P 500 over the past one-, three-, five- and seven-year periods. Notice that over both the five- and seven-year periods the S&P 500 beat all three ETFs, and it beat two of the three ETFs over each of the one- and three-year periods.
I hasten to add that it is not necessarily a criticism of these ETFs that they have lagged the broad market. You might consider it a success simply to come close to the S&P 500 while avoiding companies whose politics you find objectionable. But if you're tempted to invest in any of these ETFs, you should know that you likely will pay a significant long-term price for mixing politics and investing.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com
-Mark Hulbert