Do Democratic equity fund managers beat their Republican counterparts?

That is the topic of my latest Bloomberg column.  Here is one bit:

The paper, by Marian Moszoro and Michael Bykhovsky, uses Federal Election Commission data to identify equity fund managers by their political contributions. If the managers at a fund gave to only one of the two major political parties, that fund is then classified as having an intellectual or ideological connection to that party.

…The authors find that for the years 2004 to 2014, with the exception of one period, equity fund managers of the two political affiliations did about the same. That should give pause to anyone who thinks that either political party has a monopoly on a better or more accurate view of the economy.

This is in noted contrast to Krugman’s frequent claim that the Republican fund managers are somehow unmoored from macroeconomic realities.  But:

…for one critical period of time, December 2008 to September 2009, the Democratic fund managers did much better. They earned 25.25 percent on average, compared with the Republicans’ 17.17 percent — a difference that, by the authors’ back-of-the envelope calculations, amounted to about $13.7 billion.

My (unconfirmed) view is that much of this was lack of faith in President Obama, though a big market rally was to start in March 2009.  Perhaps the Republican fund managers were not in the market enough.  Another possibility of course was that some of the Republican managers expected high inflation, due to the Fed injecting trillions of liquid reserves into the banking system.  Finally, the Democratic equity fund managers may have had better political connections and thus been better informed.  The timing of the returns discrepancy, however, I think squares best with the “confidence in Obama” interpretation.  And here is the Hansonian part of the column:

Another interesting finding: Most of the fund managers donated exclusively to either the Democratic or Republican Party — 44.9 percent and 46.6 percent, respectively. “Mixed” funds accounted for only 8.3 percent of the overall sample (of more than 80,000 fund-month observations). Since the choice of party doesn’t appear to provide much of a market edge, the loyalties might reflect longer-standing personal, regional, and institutional connections. Perhaps political unity within a company serves social and networking functions, even if it doesn’t provide any special economic insight.

Do read the whole thing.  And if you are wondering:

Hedge-Fund Money: $48.5 Million for Hillary Clinton, $19,000 for Donald Trump

For the original pointer to the Moszoro and Bykhovsky piece I am grateful to Samir Varma.

Comments

The stock market isn't the economy.

During deflationary busts, the stock market is pretty darn close to the economy. At other times i agree.

this is not left vs right, GOP vs Dems, Socialism vs liberty. This is war on White people.

While hostile elite defend Israel as a Jewish ethnostate with Jewish only immigration, they ravage White majority Europe/North America into a multi-ethnic, multi-cultural Gulag with non-White colonization.

The world is 91% non-White, only 9% White. But non-White colonizers are aggressively advancing their agenda to annihilate gullible Whites, just as Chinese annihilate Tibet.

How long will gullible Whites cuckold for murderous anti-White elite, who suppress our fertility, confiscate our guns, infiltrate/subvert our banks/FBI/CIA, indoctrinate White kids in academia/mass media, plunder White jobs/wages, & butcher White soldiers in bankrupting wars?

“Native” Americans invaded from East Asia. Yellow & Brown races committed 10-times more genocide, slavery, imperialism than Whites. Since Moses, Whites have been victims of Jewish/Crypto-Jewish, Muslim, N.African imperialism, slavery, genocide.

Gullible Whites should reject subversive ideologies- libertarianism, feminism, liberalism- & hostile slanders of racism. Peace to all humanity, but White people must organize to advance their interests, their fertility, their homelands. Spread this message. Reading list: http://goo.gl/iB777 , http://goo.gl/htyeq , http://amazon.com/dp/0759672229 , http://amazon.com/dp/1410792617

Melanin-deficient peoples of the world unite! Your vitamin D-deficient past in northern climes rid you of the evil evil melanin. Now, melanin is creeping back into the population.

Fear the melanin. And most especially, fear the people who bring the melanin factories with them. I fear, the darkness may overcome us.

(P.s.: vitamin D supplements are really cheap, and highly protective against cancer, in particular for dark-skinned people whose protection against sunlight means they produce less vitamin D.)

No, but the stock market favors the nonideological. Thus, if one party today were less ideological, they would have a statistical advantage. Cross sorting for flinty-eyed realists.

Cross sorting for evolution believers (not Mike Pence) would produce a similar effect.

Seems like an evidence-free assertion

It was for fun, but here is a classic in the genre:

http://www.theamericanconservative.com/articles/revenge-of-the-reality-based-community/

Well, fun but possibly true too.

The paper refers to hedge equity funds not equity funds. Hedge funds typically hold long and short positions and I am not sure they represent "the stock market". At any rate tellingly none of these guys beat the S&P 500, but they still took the clients money . The managers are the ones getting rich.

The stock market itself is mostly a random walk at least on a short term basis. Longer term , it falls when the economy enters a recession and profits and dividends are poised to dive , but it's not exactly that predictable. Best strategy is buy and hold something like the S&P500, use automated dividend reinvestment and go to sleep for a few decades and wake up rich

When the robots or apes take over the planet one of the hardest things humans will have to atone for is how much mom and pop money was wasted on active portfolio management.

Oh, but it's not wasted -- it's needed to establish market prices. Index funds wouldn't work otherwise. We index fund investors are free-riding by using the information embedded in stock prices without having to pay for it. I suppose I should feel a little guilty.

You only need a small handful of active players for the indexes to work. There's no need to have thousands of actively managed hedge and mutual funds. We're just funneling mom and pop's retirement money to CFAs.

The market generally peaks well before the economy is in a recession.

The only market timing rule I know that has worked 100% of the time is that the market bottoms during recessions.

My (unconfirmed) view is that much of this was lack of faith in President Obama

Or, in the alternative, lack of access to information about his agenda.

If I recall correctly, Obama told everyone "buy stocks" very close to the market bottom.

It was sheer stubbornness to say "no I won't" then or now.

If a corporate CEO says "buy my stock, I have a plan, promise," without more, it would be actionable for a manager to obey. Why is the President any more credible?

I was surprised that Obama did something I considered unpresidential, but I could not fault the logic based on simple rules like buy when blood is (figuratively) in the streets, or that the market has always regressed to mean.

That and it does not take a rocket scientist to figure out that a guy who has a tight line to the Fed might know when to buy the market.

The Fed is and has been doing what Milton Friedman promises would have prevented the great depression and made the 30s a boom time with low unemployment.

Unemployment is low.

On the other hand, businesses doing what Milton Friedman says they must, exact as much profit as possible at the expense of workers and consumers has resulted in consumers who are workers not having enough cash to spend as can be produced so increases in production have been low.

Which is what I thought Milton Friedman thought was best when he complained that the tax and regulatory policies of the 60s caused too much employment and too much investment creating scarcity that drove up interest rates and also allowed workers to seek and obtain higher wages which caused too much demand for goods driving up prices. I think he wanted the slow economy of Ike back.

TANSTAAFL

If workers are not paid much, they can't buy much, so gdp won't be much.

Gdp can't be higher than labor costs in the long run.

"It was sheer stubbornness..."

Or an abundance of caution because no one knew quite where the bottom was. But I suppose your view is more self-flattering, so go with that.

Obama's advice was just the same as my dad's advice on Black Monday. I don't fault either for being right.

Could it be that conservatives are conservative?

Conservatives are more risk averse.

I think the keyword here may be "equity" fund managers. Republican fund managers sat out in equity market due to their (wrong) interpretation of macroeconomics. However, their interpretation very likely caused them to make long bets in commodities (a popular theme among Republican investors) that worked out extremely well that year. The rising tide lifted all boats in 2009, including equity and commodities. So if we include macro funds and commodity funds, Republicans are probably even with Democrats.

"Another interesting finding: Most of the fund managers donated exclusively to either the Democratic or Republican Party — 44.9 percent and 46.6 percent, respectively."
I don't get it, if they are bribing politicians -- and it is what they are doing-- why don't they hedge their bets and bribe both main parties? In Brazil, companies, not individuals, fund political campaigns and they fund both main candidates.

This was my immediate question as well. Nobody donates eight figures to a political party for fun.

What are they getting in return?

This would seem to be positive news that pay and play are disconnected.

Their preferred president? Or does that have no value?

They gave to the parties, not the individual candidates.

I don't think it has 8 figures worth of value.

Clinton is going to have a lot of hungry mouths to feed if she wins office. The firms that would donate to both parties or to the Republicans e.g. Goldman Sachs are donating to Clinton. So do some come away unhappy or do government handouts reach an all time high?

"Every time I appoint someone to a vacant position, I make a hundred unhappy and one ungrateful." -- Louis XIV

"Clinton is going to have a lot of hungry mouths to feed if she wins office."

She feeds them by not enacting the very items she's 'promising' to enact. Or at least to give them loop holes.

"3. Support Long-Term Growth. Hillary would combat "quarterly capitalism" by raising short-term capital gains taxes for those earning $400,000 or more a year, the top 0.5% of taxpayers. Investments held between one and two years would be taxed at the maximum income-tax rate of 39.6%. Assets held for longer would be taxed on a sliding scale, such as 36% for those held 2-3 years, 32% for those held three to four years, and 20% (the current rate) for those held for six years or more."

"Clinton would tax high-frequency traders. She would extend the statute of limitations for financial crimes, and require CEOs personally pay part of any fines levied on their companies. These regulations were written with the help of former Congressman Barney Frank. She proposed an "exit tax" on companies that attempt a so-called "tax inversion." They would pay American taxes on any deferred foreign earnings. These Wall Street tax increases would raise $80 billion a year. "

These proposals undoubtedly have Wall Street in a tizzy. Either her big donors figure, they're already rich and they don't care if the new taxes hit the up in comers or they expect her to push these proposals out in a way that they will fail. I expect the latter. Then they'll get the pay off for their investment in Clinton and she'll "blame" the Republicans for blocking the bills.

That has been the traditional case for most companies in the U.S. whose names you might recognize--Anheuser-Bush used to fund Missouri politics writ large--but funds are an obscure enough industry not to really worry about that.

If you model campaign contributions as protection money, it's not so much that you need to get to the people running the show, but make sure that you are being protected by someone with a seat at the table.

Having people in the minority party on your side is miles better than having no one at all in Congress who cares if you get taken out back and skinned.

Maybe it's just a market failure...like much of the rest of the asset management industry.

http://daviddfriedman.blogspot.com/2011/10/donating-to-both-sides-research.html

I think your 2008/09 explanation makes sense. Right-wing websites seem to attract a lot of goldbug-type advertising.

Also, the Wall Street types I come across are big-time pro-Clinton these days. Weirdly, they seem to favor her adventurous foreign policy stance too, though the connection is not obvious to me.

They bought her thru speech fees and Clinton "Foundation" gifts already. Of course they want to collect on their investment.

Is it possible that the contributions to Hillary and not Trump reflect the believe that no one thinks Trump will win?

And in fact is it possible that this is always true? That is, people in these positions contribute to whom they think will win?

"Is it possible that the contributions to Hillary and not Trump reflect the believe that no one thinks Trump will win?"

Trump has a 25% chance of winning according to BettingFair. And that's probably not to far off the real results. Whereas, he's getting less than 0.1% of hedge fund money.

I'd say those guys want Hillary to win and expect to make a lot more money with a friend on the inside. Hillary has been paid a lot of money by Wall Street for her 'advise'. They expect favorable treatment during a Clinton Presidency.

"They expect favorable treatment during a Clinton Presidency."

Of course. They believe she is Simon Cameron's idea of an honest politician, one who will stay bought.

Interesting angle for the causality relationship. Why spend money on someone who won't win? If there are benefits from donations, you give money to the most likely winner independently of party affiliation.

For most of the past two weeks, 538 has either shown Trump in the lead (rare), or only needing to flip one state leaning less than 2% towards Hillary to win. Just recently he's fallen to needing several states, probably because he continues to say crazy things and pick fights that don't need picked.

Those fights won't pick themselves, will they?

If Democrats are more likely to engage in "social investing" and thus they avoid investing in certain "sinful" companies then I would have thought that their risk adjusted rate of return would be lower than Republican (unconstrained) investors. Either "social investing" does not impose costs on such investors, or Democrats engage in expected income maximization when they are investing other people's $.

There is only one fund that acts wholly in clients' fiduciary interests -- Vanguard.
Vanguard is the only investment company owned by the investors (those purchasing mutual funds and stocks) themselves.
Their costs are extremely low, 5 basis points (0.0005) rather than 100 to 300 basis points;
with little equity churning (takes 60 years to finally turn over 100 percent)
so low capital gains taxes; and no necessarily large stock purchases from that churning that would corner prices on the high side.
Their index funds require almost no management cost.

Vanguard even refused a $30 million investor wanting to put money into a short term bond fund for 4 months,
because that would jerk around other investors.

In the long run, it's dubious that any equity fund can beat Vanguard's total stock index fund (or S&P 500 fund) returns.

I've never seen any alignment of Vanguard with either the Democrat or Republican Party.
That's as it should be -- don't upset your clients with any hint of politics.

"In the long run, it’s dubious that any equity fund can beat Vanguard’s total stock index fund (or S&P 500 fund) returns."

That's where I dropped my marginal money the Friday after Brexit. Specifically, VTI.

Look, markets and prices would not clear if *everybody* just dropped their money into Vanguard.

We get it, Vanguard is the appropriate investment vehicle for the majority of the country, if not 90% of it, but everytime someone on the internet raves about index funds it reminds me of that friend who acts like he was the first to discover Sriracha sauce.

Most of the fund managers donated exclusively to either the Democratic or Republican Party — 44.9 percent and 46.6 percent, respectively. “Mixed” funds accounted for only 8.3 percent of the overall sample (of more than 80,000 fund-month observations). Since the choice of party doesn’t appear to provide much of a market edge, the loyalties might reflect longer-standing personal, regional, and institutional connections. Perhaps political unity within a company serves social and networking functions, even if it doesn’t provide any special economic insight.

I don't know what "Hansonian" is supposed to mean here, or why this is a particularly insightful observation. Who doubts that there would be a tendency for the individual managers to be in general political agreement.

And while I'm asking, who is surprised that there is no real difference in performance? Krugman? Could I get a cite for the specific claim with respect to fund managers, as opposed to Republican politicians?

If you had to be moored in reality to be successful the world would be a very different and a much better place.

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