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Policy Exposure & Portfolio Allocation

07.09.2018 | Ben Phillips, CFA

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Policy has the biggest impact on the small- to mid-cap (SMID) segment of a portfolio. We think most large cap companies are too diversified for policy to make an impact. While these companies may have one impacted segment, multiple unrelated segments could diversify away the policy impact. Additionally, large cap stocks are typically followed by more research analysts, reducing the “policy edge” for investors.

 

“Policy has the biggest impact on the small- to mid-cap (SMID) segment of a portfolio.”

 

Conversely, SMID cap stocks, and large cap stocks up to $15 billion in market cap, tend to be less diversified and less followed by major research analysts. With less diversification, a smaller company may be more impacted by changes in the dollar amounts of government contracts, or by increases in the insured population, or decreases in regulatory costs. It’s more difficult for a smaller company to absorb a policy and minimize the impact, whether it’s good or bad.

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In our view, investors should allocate a portion of their portfolio to policy investing. At EventShares, we strive to sift through the noise and gauge a policy’s financial or operational impact on companies in the marketplace.

 

“We think holding policy-sensitive stocks across diverse sectors gives investors market exposure with embedded policy catalysts.”

 

We think holding policy-sensitive stocks across diverse sectors gives investors market exposure with embedded policy catalysts. If the policy catalysts occur, the portfolio may offer lower correlations to the broader market and the opportunity to generate alpha.

 

 

This is an excerpt from our White Paper: 

A Guide to Policy Investing

 

Download Full Whitepaper

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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.