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Jan 8
Investments in the Red

Investors normally don't like to hear that their investments are "in the red," but there's a new exception for Republican investors who want their investing strategy to support their political point of view. From the New York Times comes this story (also online here) about mutual funds set up to cater to the so-called "red-blue" partisan divide in the American electorate.

The NYT article fails to disclose that its parent company, the New York Times Co., is one of the stocks in the portfolio of the mutual fund of companies that favor the Democratic Party. More on that later in this blog post...

Here's a portion of the article.

In one election after another, American voters have shown that they are sharply divided along partisan lines. Now, Americans have a new way to demonstrate whether they lean red or blue: through their choice of a mutual fund.

Two funds started recently by Blue Investment Management, a New York fund company that is less than a year old, will limit their holdings to companies that donate the majority of their political contributions to Democrats.

On the other side of the aisle, Action Fund Management, based in Potomac, Md., created the Free Enterprise Action fund in 2005. This may be the closest thing to a Republican-red mutual fund. The managers intend to lobby the companies in the portfolio whenever they think shareholders' money is being wasted on social causes.

The Blue site says the funds will invest only in companies that both "act blue" and "give blue."

The Free Enterprise Action fund website says the managers want to wage shareholder proxy campaigns to "promote the American system of free enterprise."

The Free Enterprise Action fund does not exclude stocks based on social or political criteria. It now includes the 450 largest stocks in the S&P 500. The managers view the fund as a platform from which to start shareholder proxy battles - so all the better if bad apples are included. "The corporation has become an extension of the cultural battle in our society," said Steven Milloy, co-manager of the fund. "Thirty or 40 years ago, before all of this social investing started, companies were just in business to make money. Now corporations are being hijacked by various activist groups."

Milloy has decided that if you can't beat 'em, join 'em. For example, he opposes the decision by FedEx, the package delivery company to buy hybrid trucks.

This probably won't surprise the readers of Milloy's column for Foxnews.com or his blog, JunkScience.com, where he disputes the science behind global warming. He was an adjunct scholar at the Cato Institute, a conservative research organization, before leaving to start the mutual fund in 2005.

The NYT says Blue Investment Management's pro-Democrat mutual funds "operate much the way traditional socially screened funds do, eliminating companies they regard as having poor environmental records, for example."

But what really sets the Blue funds apart is their exclusion of companies that make less than 51 percent of their political donations to Democrats. Although the funds do not have any official connections to the Democratic Party, the funds' managers, Daniel de Faro Adamson and Joseph J. Andrew (a former Democratic national chairman) plan to meet with finance chiefs of Democratic political campaigns and union pension funds to ask them to become Blue fund investors.

The NYT says that only about 75 in the S&P 500 index qualify for the large-cap fund, and about 370 in the Russell 2000 make the small-cap fund. "The only sector not included is energy," reports the NYT, as "no companies in that category satisfied all the requirements."

Even the Blue funds can be used by Republican investors - as a guide to companies you might not wish to buy individual stocks in, or do business with, if you want to keep your investments and business dealings "in the red" politically-speaking.

For example, while Blue's large-cap fund currently includes CVS Corp., the national drugstore retailer chain, in its top-25 holdings, indicating CVS favors Democrats with its political contributions, it does not include Walgreens. The Free Enterprise Action fund includes Walgreens in its holdings.

If you're a Republican, you might keep that in mind the next time you're getting a prescription filled or running into the "drugstore" to buy cosmetics or get your digital pictures printed.

Other big names in the Blue's large-cap fund top-25 holdings: Apple, Google, CBS (shocking! but true!) Costco, Nike and Starbucks. The fund's entire portfolio as of September 2006 also included The Gap, retailer Bed Bath & Beyond, homebuilder KB Homes, and The New York Times Company.

That last fact  is not disclosed in the NYT's story about the Blue funds, which would seem to be a breach of ethics if not of journalistic protocols. The New York Times Co. doesn't control what stocks are in the Blue portfolio, though it stands to benefit perhaps from inclusion in the Blue portfolio if Blue Investment Management successfully attracts large numbers of investors to the fund, which might have the affect of supporting the stock prices of companies in the fund.

The New York Times should have, out of an abundance of ethical caution and in the spirit of full disclosure, informed readers that its parent company is in the Blue fund portfolio. It also should have informed readers that CBS, a big media company with which the New York Times often partners on political journalism projects such as the regular New York Times/CBS public opinion polls (resulting in both newspaper and broadcast stories) was included in the Blue fund portfolio.

But the NYT, along with CBS among the biggest targets of conservatives crying "liberal media bias," likely omitted the information for fear that it would provide those critics fresh ammunition.

By trying to keep it from readers, though, they just reinforced their biased image.

If you are interested, here are the Blue small-cap fund's top-25 holdings.

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Comments/Trackbacks




I have 20 years in the brokerage end of the investment game and I've only learned one or two things that are cast in stone. One of them is NEVER, EVER invest with someone who cannot keep his political opinions out of his investment advice. Blue leads to who do you know that's Blue? How blue is he? Is he patronizing any Red people? Is he hiring any Red people? and so on. Religion and ethics get confused also. Just stay away from them because they are bad for your financial health, eventually. All I want to know and need to know is what to buy or sell, and when buying "why?".

I think if the NYT had disclosed their parent company's inclusion in the portfolio, they would have been accused of advertising.

Bring the sheep to the shearing. Yeah these are no load funds but notice the expense ratios - 1.5% for the large cap and 1.75% for small cap! I'll bet they want union pension funds to join up - that would guarantee the retirements for these guys.

Any Motley fool would say avoid high expenses.

Any Random Walker would also mention that limiting your universe of companies raises your risk compared to a true index fund. Gee- just what liberals need - expensive riskier investments. If socially progressive policies make money, every company will be on it real soon.

Nice criteria to label a business, sounds like the medieval times when people were considered according to the amount of money they donated to the church. It seems some people know their interests and there are some other people that would like to know who affiliates with them.

That's an interesting review, it has it all: politics and facts. I cannot argue what you are saying i just think New York Times is a powerful brand and this should be considered overall.

Bring the sheep to the shearing. Yeah these are no load funds but notice the expense ratios - 1.5% for the large cap and 1.75% for small cap! I'll bet they want union pension funds to join up - that would guarantee the retirements for these guys.

i believe it is an old strategy, no one would rely on them anymore. i hope we will be smarter in the future.

» Boycott Guide from Man in the Middle
In a followup to yesterday's discussion about a suggestion to fire Republicans, here's a suggestion to boycot companies who donated to the other side in the last election. Shopping Your Politics By Alan Abramowitz With the holidays upon us, some of us ... [Read More]

» Blue Mobius Loop from Ed Driscoll.com
To add to former Times-ombudsman Daniel Okrent's famous 2004 article opening: Is The New York Times a Liberal Newspaper? Of course it is.Just ask Blue Investment Management, which the Times notes is "a New York fund company that is less... [Read More]

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