Make Investing Great Again
Follow the money…
It’s one thing that is as true with investing as it is in politics. Like Hansel and Gretel, you simply have to follow the bread crumbs to find out where the sausage is being made.
Whether you are for or against the millions spent on elections, the main takeaway is this: we’re living in a pay-to-play system, and if you stop to take a look at who is spending money and where, you’ll be much better educated about how politics and business works.
That’s why I wanted to bring you this very interesting interview today, with a man who has identified that fact and started a fund that seeks to uncover the political money trail for investors…
A lot of people claim to put their money where their mouths are: they invest in companies they agree with, they spend their money at stores that align with their values and they boycott those that dare to cross their proclivities.
In recent past, we’ve seen shoe owners burning Nike shoes because they disagree with the company's decision to back NFL player Colin Kaepernick.
We’ve seen LGBTQ protesters boycott Chick-fil-A for opposing gay marriage.
Target had boycotts after it allowed mixed-sex bathrooms and changing areas.
But it is one thing to boycott a company you disagree with. It is quite another to champion and invest in companies that you do agree with.
The man I interviewed has put together an ETF that will align Republican voters with Republican dollars. He started the Point Bridge GOP Stock Tracker (BATS: MAGA), which tracks an index of U.S. large-cap companies whose employees and political action committees are highly supportive of Republican candidates.
His name is Hal Lambert and he has been involved with politics for years...
He served on the Inaugural Committee for President Trump. He was the finance chair for the Texas GOP. He served as a National Finance Chair for presidential campaigns in 2012 and 2016, and he has helped raise funds for numerous U.S. Senatorial campaigns as well as candidates in his home state of Texas.
Basically, he knows the ins-and-outs of money in Republican politics and put that knowhow into an ETF that tracks it.
It's a fascinating look inside the realm where politics and investing meet. Here's our chat...
Jimmy Mengel: I'm here with Hal Lambert from Point Bridge Capital. Hal, thanks for taking the time.
Hal Lambert: Happy to do it.
Jimmy Mengel: So, just to give our readers some background and perspective, what is your current job in terms of managing money and how did you come to start your own ETF?
Hal Lambert: Well, I've got my own firm. I own Point Bridge Capital. I'm the founder and CEO. I launched it about five years ago. I worked with a couple of different Wall Street firms prior to that where I was managing money, so I've been in the investment management business for 20+ years. I've been mostly on the equity side but I've also managed some fixed income as well as the hedge fund side of it too.
So, I've got a very broad spectrum. It's pretty unusual for most people to have that.
Jimmy Mengel: So where did the ETF come into the fray?
Hal Lambert: Really, the ETF came about because in managing money, I realized that these companies were getting more and more political. Most of the politics were to the left. And so they would come out and make statements or they would come out and change their policies. Whether it be a Starbucks (NASDAQ: SBUX), a Target (NYSE: TGT) — or the latest is Nike (NYSE: NKE) with their ad campaign where they brought on Colin Kaepernick as their spokesperson. That really throws it in the face of people who disagree. Him kneeling on the football field has nothing to do with Nike, but yet they chose to make a political statement.
So, with that kind of backdrop I decided to look at how do I allow people to invest based on their political views. There wasn't really anything out there in the market that allowed that. There's some ESG stuff which is pretty left as well where looking at social governance and green energies, anti-oil and gas, those kinds of things, anti-gun, anti-tobacco.
There's those kind of investments out there but there wasn't really anything on the other side so...
Jimmy Mengel: Just to stop you there... For readers that don't know what ESG is, that's Environmental, Social, Governmental?
Hal Lambert: Yes. Exactly. That's what that is.
Jimmy Mengel: I have seen a lot of the socially responsible investing funds crop up.
Hal Lambert: Exactly. Yeah. That's that term. And again those are typically things like: You don't want to own defense stocks. You don't want to own oil and gas stocks. For the most part it's a pretty left type viewpoint of the world.
Jimmy Mengel: Yeah. I've seen such funds come about and regardless of what your politics are a lot of those funds don't really do very well because you are kicking out a lot of the other sectors, like energy stocks. If you're not going to invest in stocks like Exxon or any of these large-cap stocks that are historically some of the best stocks out there, you're really shooting yourself in the foot with your political agenda.
Hal Lambert: Yeah. I mean obviously people have the right to do that. But I think it's also kind of hypocritical because the world, certainly the United States and the rest of the world, can't function on solar power, right? So, everybody's driving cars. Even if you're driving an electric vehicle, that electricity comes from a power plant that's powered by fossil fuels.
Jimmy Mengel: Sure. You still have to plug your car in.
Hal Lambert: You have to plug your car in. Your computer that you're using comes from power in a building. So the world can't function without those and yet they're saying that you shouldn't invest in those. I don't think it makes a lot of sense but, obviously, they have the right to do that.
Jimmy Mengel: Sure. But no, it's interesting to see a counterpoint to that from somebody who actually has done investing for their entire life. I think a lot of the funds are a little more pie-in-the-sky, feel-good stuff. I completely understand that, and I'm all for aligning your money with your values. That seems like what you are doing.
Hal Lambert: Yes indeed...
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Jimmy Mengel: But looking through the companies in your ETF portfolio, it does seem like there are many companies that aren't necessarily political. So, backing up a little bit more, the ETF is called MAGA, so obviously, Make America Great Again.
Hal Lambert: That's the ticker, yeah. That's the ticker that it trades on the exchange.
Jimmy Mengel: So let's start there. When did you decide to make that the ticker? Was it the groundswell of populism that came out of Donald Trump's campaign, which I presume made you think that that is really something that people are yearning for.
Hal Lambert: Well, yeah. So, the way this happened, I started looking at a way to invest politically. And by the way, I'm calling this politically responsible investing. So you mentioned socially responsible investing before. This is actually politically responsible investing.
I started looking at this in early 2017. I had to go through all these regulatory approvals with the FCC. This trades on the exchange just like a stock so there's a lot of regulation around it. A lot of legal. There's a board and everything else. So it's quite a process to launch one of these. But it launched in September of 2017. So it's now been out a year.
Jimmy Mengel: Alright, so, you launched in September. I was looking over just your allocations and I thought it was pretty fascinating because a lot of ETFs will be heavily weighted one place or another. And you'll have 25% in Exxon or this or that. I noticed with your ETF everything... there are a ton of minuscule sub-1% holdings. Can you explain how you determine those holdings?
Hal Lambert: So really the way to think about this... what I did was, every position in this ETF, every stock, it comes originally from the S&P 500. So I took the S&P 500 and people may want to go, "Well, how do you decide what companies? This is a Republican stock ETF so how do you decide what companies are Republican or more conservative?"
I did it based on their political contributions.
So I looked at the Federal Election Commission filings and I looked at what their PACs and their employees do from a political contribution standpoint.
Because, unfortunately, policies are driven from Washington rather than the states. I would prefer it to be the states but most policy now is driven out of Washington. And the people that are elected up there, a lot of it's dependent on how much money they can raise. So I think that's a big factor in what kind of policies are going to govern the country. So for people that are looking to invest, it's an important thing. And so what I did was I took the top 150 Republican-supporting companies in the S&P 500.
Then that goes to your question, "Well why did I do that, and how did I decide how to weigh them?"
I did them equally weighted. So every stock is equally weighted. They basically start at .667 as a percentage. There's a number of reasons I did that...
A lot of the early ETFs that were launched are what's considered "market-cap weighted." So if you were to buy, let's say, a biotech ETF, you might have three stocks that represent 50% of the biotech holdings because they ran...
Amgen (NASDAQ: AMGN) and Celgene (NASDAQ: CELG) and those kind of companies, that was originally what had gone in there and they're market-cap weighted and so they're the largest ones. Those aren't really diversified. I mean, you're pretty much investing in a handful of companies even though you think you own a broad spectrum of stocks.
ETFs are really supposed to enable people to invest in one purchase in a diversified basket of securities. And so that's the way I view ETFs. I think that's the way most investors view them. So I wanted to make sure that that was the case with mine. I think most newer ETFs are, for the most part, going to do the equally weighted versus a market cap weighting. So that's what this did. I think it creates a really good diversification for people so you don't have huge risk in any single stock in the portfolio. It's pretty diversified from a stock perspective.
Jimmy Mengel: I thought that was one of the more impressive things when I was looking at the holdings. It isn't in 10 big stocks. And when I'm thinking about the way political cycles go, even if Republicans aren't in charge, it seems like you are well diversified enough for that to re-correct itself accordingly and still work within the industries and within the trends without just being like, "Here are the top 10 historical donors to the GOP."
Which — if the Democrats come into power — are not going to sink the ETF.
Hal Lambert: Right. I would agree with that. By the way, I'm going to look at this every election cycle so we'll be reviewing the contributions for this cycle which is the 2018 election cycle and so the names will be adjusted based on their political giving next year.
I think with the diversification and the fact that you have to be an S&P 500 company to be in this — to be in the S&P 500 is hard enough for companies to get to. Typically, the S&P does a pretty good job of screening companies. This is just screening from that pool that's already there. So, I agree. I think that regardless of who's in power, this is diversified enough.
I'll have the rest of my interview with Hal tomorrow.
However you feel about politics going into this very heated election cycle, it pays to know where the money is coming from.
Jimmy is a managing editor for Outsider Club and the investment director of the personal finance advisory, The Crow's Nest, and cannabis stocks advisory, The Marijuana Manifesto. For more on Jimmy, check out his editor's page.
To continue on to part two of this interview, please click here.
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