Can You Really Turn Electoral Politics Into Market Gains?

Democrat Donkey and Republican Elephant symbols on political buttons.
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The midterm elections on Nov. 4 draw attention to an interesting question for investors: Does it make sense to invest your money where your political beliefs lie? A company called Motif Investing offers some interesting conclusions.

Are Politically Active Companies Good Investments?

Motif offers members a way to invest in themes that it identifies with stocks that it selects and apportions. In essence, buying a motif is like investing in a tailored exchange-traded fund, except that you have more flexibility in deciding how you want your money invested.

%VIRTUAL-WSSCourseInline-1049%Motif allows members to create their own motifs but also has set up some of its own. The company established on motif focused on major donors to Democratic campaigns and another investing in companies that give heavily to Republican candidates.

Interestingly, both strategies have dramatically outpaced the broader stock market's return since they were established in mid-2012. The Republican Donors motif -- which includes stocks like delivery specialist FedEx (FDX), defense companies Lockheed Martin (LMT) and Northrop Grumman (NOC), and big banks Goldman Sachs (GS) and Bank of America (BAC) -- has produced returns of almost 75 percent, easily beating the 50 percent returns from the S&P 500 (^GPSC).

Returns of the Democratic Donors motif have still outpaced the broader market. The companies in the Democratic camp -- which include tech giants Microsoft (MSFT) and Google (GOOG) (GOOGL) as well as media empire Comcast (CMCSA) -- have returned almost 70 percent in the past two years or so.

Looking at the Issues

Another way Motif has tested politically inspired investing is through specific issues. One of the most popular has been Obamacare, with two motifs taking opposite sides of the debate.

The Obamacare motif was designed to focus on sectors of the stock market that would arguably benefit most from the Affordable Care Act, including hospital stocks, providers of Medicaid services, generic drug-makers, pharmacy benefits managers and providers of electronic medical-record services. It has produced returns of between 70 and 75 percent since late 2012, topping the 40 percent return of the S&P 500.

On the other side of the coin, the Repeal Obamacare motif has had a very different experience, underperforming the S&P 500 by 25 percentage points since it was created at the beginning of 2012. This motif concentrated heavily on makers of diagnostic testing equipment and medical devices, which in some cases had to pay excise taxes and saw cuts in reimbursement rates as a result of the Affordable Care Act, and the fact that Obamacare hasn't been repealed suggests that these companies' fates were indeed linked at least to some extent to whether health care reform would take root.

Stay Smart With Your Investments

There's no doubt that what happens in the political world has an impact on your investments. By identifying stocks that are most closely connected to the issues that are most important to you, you can make your own decisions about whether the political machinations leading up to the November elections offer you an opportunity to boost your profits from your investing portfolio.

You can follow Motley Fool contributorDan Caplingeron Twitter@DanCaplingeror onGoogle Plus.He owns warrants on Bank of America and class-C shares of Google. The Motley Fool recommends Bank of America, FedEx, Goldman Sachs and Google (A and C shares). The Motley Fool owns shares of Bank of America, Google (A and C shares), Lockheed Martin, Microsoft and Northrop Grumman. To read about our favorite high-yielding dividend stocks, check outour free report.

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