Is Buying Stock in Companies That Spend a Lot on Lobbying a Good Investment Strategy?
We’re all hearing it: the bull market is “long on the tooth,” and the market volatility we’ve seen so far this year is a sign that a big correction, or even a bear market, may be around the corner. Interest rate fears, trade wars, and the ballooning debt are all on the minds of small and institutional investors alike as the stock market climbs the proverbial “wall of worry.”
But this is a policy blog and not an investment blog. Still, I can’t help but call our readers’ attention to the Lobbying Index fund developed by Strategas Securities. I was tipped off on this fund by one of our liberty-minded supporters who is a successful investor. And based on this fund’s returns, its investors are probably sleeping very well at night.
The Lobbying Index fund is composed of 50 companies that the fund managers believe get “the best lobbying bang for their buck,” writes Barron’s. It has outperformed the S&P 500 by an average of almost five percentage points annually over the decade. Since its 2009 launch, its average annualized return of 14.4% (through 4/13/18) whops the S&P 500, which returned 9.5% over the same period. And if you had put money in the Lobbying Index fund in 2009, you would have seen a total return of 473%!
In discussing the thesis behind the fund, Daniel Clifton, head of policy research at Strategas, said “Washington, D.C., is a factor not accounted for by investors, but should be, because an increasing portion of earnings is decided in the capitol.” Indeed, Barron’s columnist Vito J. Racanelli, who profiled the fund, said it best: “Corporate lobbying of government is a critical component of business strategy in the U.S., and for good reason. Favorable regulations can help companies grow their markets, keep competitors at bay, and fatten the bottom line. If an investor could methodically capture the lobbying effect on earnings, something Wall Street doesn’t seem to do well, that presumably could lead to better stock-market returns.”
Last week, lawmakers in Washington, after feeling guilty for the blow-out budget it passed earlier this year, announced they were pushing forward a $15 billion rescission package to trim some fat. My colleagues Wayne Winegarden and Tim Anaya lamented that the diet didn’t seem to include trimming corporate welfare pork.
The Lobbying Index returns discouragingly explain why.
Rowena Itchon is Senior Vice President at the Pacific Research Institute.