EventShares launched its Republican Policies ETF last year, focused on the companies that would expect to be positively impacted by Republican policies.
The funding bill, agreeing USD165 billion increase in defence spending among other things has had a positive impact on CIO Ben Phillips’ portfolio which is 28 per cent skewed to defence and border security stocks.
Phillips says: “The stock market last year started pricing in the potential for tax reform and that happened so now in 2018 the market is looking for the next catalyst.
“The budget was a good thing overall for markets as it removed some uncertainty and we saw some increase in defence and domestic spending.”
However, he warns that it did cause some people to observe that the US is entering a USD1 trillion spending deficit in 2019 and could get to a place where debt could exceed GDP.
“People are asking who are going to be the natural buyers of US treasuries and government debt with the US Treasury and other central banks shrinking their balance sheets.”
Phillips believes that as yields come up, there are other alternatives along the risk spectrum which causes the market to pause and reflect.
The GOP ETF has USD1.75 million under management while its Democratic sibling sits at USD1 million. Another ETF designed to benefit from tax reform sits at USD11.5 million.
“The portfolio is positioned for the current environment,” Phillips says. “We have the deregulation bucket of financial companies that will benefit from deregulation, plus the tax reform bucket whose themes will play out for the next few years.
“We also have an infrastructure bucket which is still a bit of a question mark but it seems like the Trump administration does want to get something done.”
Phillips believes that advisors have always told their clients not to mix politics with investing.
“We have to overcome that bias as these funds are based on policy not politics,” he says. “Politics is just the day to day noise and we try to look through that. Our core thesis is that policy is a long term leading indicator for changes to companies and industries and if we can identify the policy changes, we can spot the shifts before the rest of the market and the management teams realise it.”
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