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.