The exchange-traded fund arena is teeming with thematic products constantly fighting for investor attention, and two new entrants on Tuesday promised to add “meaningful value” to portfolios. That latter remains to be seen.
Unusual Whales Subversive Democratic ETF
(ticker: NANC) and
Unusual Whales Subversive Republican ETF
(KRUZ) are equity-based ETFs launched Tuesday that invest in companies based on stocks purchased and sold by sitting, registered Democratic and Republican members of U.S. Congress, respectively, and/or their spouses.
The two ETFs are ultimately tools for investors who want to own the stocks that elected representatives do, perhaps because they believe congress members are privy to information that can help them outperform the broader market.
Subversive and Unusual Whales believe this is a serious product for investor portfolios. “We aim to bring all investors our institutional knowledge and network to drive meaningful value for their portfolios,” the ETF issuer Subversive said in the press release. Congress’ holdings outperformed the
by about 17.5% in 2022, and by about 1.2% in 2021, according to Bloomberg’s story on the two ETFs. Barron’s asked the issuer to confirm but didn’t get an immediate response.
That said, piggybacking on the personal portfolios of lawmakers has a price. Investors have to pay a 0.75% management fee for each, higher than the 0.61% on average charged by thematic ETFs in 2022, according to Morningstar data. Comparatively, a sector fund like the
Vanguard Large-Cap ETF
(VV) charges 0.04% while the
SPDR S&P 500 ETF
(SPY) charges 0.095%. Expense ratios are important because they eat into investor returns, particularly over the long run.
Subversive Capital Advisors’ Christian Cooper said that issuers are racing to provide the lowest thematic ETF fees, but “we are trying to offer something unique, and believe we can do so at this rate given risk.”
The funds aren’t the first to offer investors a way to capture their political leanings. The Point Bridge GOP Stock Tracker ETF (MAGA), which has a ticker geared to Republicans, emphasizes companies with relatively high donations to GOP politicians since 2017 and includes energy companies like
(MPC). Its peer, the left-leaning
Democratic Large Cap Core ETF
(DEMZ), follows a similar methodology and owns
(MTB), among others.
“Lot of asset managers are pinning their hopes on ‘this is going to be something different,’” Elisabeth Kashner, director of ETF research at FactSet told Barron’s. “There’s so much something different.”
In fact, many thematics just disappear into thin air if they fail to gather enough investor demand, as measured by assets under management. Only about 24 thematic ETFs have crossed $1 billion in assets in 2022, according to Morningstar data. Unusual Whales Subversive Democratic ETF and Republican ETF have less than $1 million in assets under management, respectively, but investors should give ETFs at least three months before judging their size. The good news is that they’re getting traded: The ETFs traded a combined 87,400 shares on Tuesday and more than 100,000 on Wednesday
“We think will drive institutional adoption,” Cooper said, in referring to the expectations of demand ahead.
Of course, some thematic bets can pay off. Low-volatility ETFs like iShares MSCI USA Min Vol Factor (USMV) were relative winners last year, down about 9% versus S&P’s nearly 20% fall, and research has shown that they can produce returns at least as good as a market-weighted index with smaller price swings.
NANC and KRUZ don’t have that kind of track record yet, and in a crowded pool of thematic ETFs—about 280—it might take more than just a clever theme to stand out.
Write to Karishma Vanjani at firstname.lastname@example.org