Vote With Your Money

My good friend Joe alerted me to an interesting article in Slate.

Apparently a group of left leaning investors are starting a "Blue Fund", a fund that invests in companies that donate predominantly to Democrats (the fund uses a few other screens as well to verify that the company is Democrat approved). The Blue Fund is a competitor for the Free Enterprise Action Fund, a fund run by Republican lobbyists that invests in companies that support Republican causes.

While the Blue Fund has done some data mining to prove that without a doubt, the companies in their portfolio would have beaten the S&P 500 by 13% over the past five years and (shockingly) also beat the companies they deem to be "Red" companies.

The Blue portfolio benefits from the large allocation to both Google and Apple, which have been red hot over the past five years, and the managers assume ,if this fund had existed, the fund manager would have included as a large portion of the portfolio five years ago. Investors in the fund will see five years from now if the Blue managers can maintain their amazing prescience in real life that they have assumed they would have exercised.

The Blue managers also make the quality of corporate governance and community involvement parts of their screening process (eliminating Mrs. Clinton's famous cattle futures broker -- Refco, and the Clintons' friends who ran Fannie Mae). This makes good governance a Democrat issue, eliminating the firms that collapsed while supporting Democrats, but leaving the failed Republican firms in the Red index (I know, I know mention Enron), not exactly a fair comparison.

Unfortunately Free Enterprise Action investors have not been so lucky. Year to date the F.E.A Fund is trailing the S&P 500. While their limited history is certainly not a very valid time period to evaluate, it is also not very encouraging.

In the end I am willing to wager that investors in both funds will find more joy in the act of supporting their cause than they will in their returns. Generally funds that pick stocks on ideological rather than economic grounds tend to produce disappointing results for investors (with a few notable exceptions).

In the long term the market rewards investors who buy shares of good companies at reasonable prices. If you need another reason to stay away from political investing let me remind you that Berkshire Hathaway probably fails both funds' screens due to the left leaning donations of Chairmand Buffett and the much more free market leanings of his Vice-Chairman, Charlie Munger.

Timothy Burger
timothyb(at)timothyburger.com