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Opportunities Created From Policy Misconceptions

06.20.2018 | Ben Phillips, CFA

Policys doesn't equal policy

For many investors, policy is not a top-down, macro catalyst, but rather a series of one-time, market-moving headlines. Along those lines, many investors tend to incorrectly equate policy with politics. We think this causes them to discount policy in the portfolio-management process and underestimate its potential impacts.


While both policy and politics originate in Washington, D.C., they are not equivalent. Politics represents government conflict and debate, while policy is the resulting legislation.


“These misconceptions about policy offer an opportunity: investing in policy trends that create mispriced assets.”


These misconceptions about policy offer an opportunity: investing in policy trends that create mispriced assets. The mispricing can result from numerous fundamental misconceptions or concerns about business-model disruption. In instances of regulatory concerns, short-term volatility may offer an opportunity to buy or sell a security as the market becomes irrational due to policy-related headlines.


Below are examples of previous fundamental misconceptions driven by policy:


  • Profitability: Investors might not understand how a regulation decreases profit margins (i.e. increased compliance costs under Dodd-Frank or increased competition due to airline deregulation in the 1970s).


  • Revenue: Investors may not be aware of a new customer base or revenue opportunity (i.e. decrease in uninsured population under the Affordable Care Act and resulting Medicaid expansion, or new contracts for defense companies under the George W. Bush and Trump administrations).


  • Market Share: The impact might also be an opportunity for some companies to grow market share (i.e. SunPower’s solar panels being subject to Trump administration tariffs while First Solar’s solar panels were not). 



This is an excerpt from our White Paper: 

A Guide to Policy Investing


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Important Information

Active Weighting Advisors LLC ("AWA") is an SEC-registered investment adviser that manages ETFs under the brand name EventShares Funds. Mr. Phillips is the Chief Investment Officer of AWA. The views expressed are subject to change, and no forecasts can be guaranteed. The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. AWA is not soliciting any action based on this document. In preparing this document, the author has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. Investing involves risk, including the possible loss of principal and fluctuation of value. Mr. Phillips and AWA disclaim responsibility for updating information. In addition, Mr. Phillips and AWA disclaim responsibility for third-party content, including information accessed through hyperlinks. For more information about EventShares, contact us by calling 877.539.1510 or visit our website at www.EventShares.com.