Most people have no idea because it’s not easy to figure out. Retirement and investment portfolios usually include lots of different funds and other investment products that in turn include tens (if not hundreds) of different company stocks in varying amounts.
But if you care about being socially and politically conscious, which companies you invest in matters. When you buy stock in a company, you are quite literally giving your money in exchange for a small ownership stake in that company.
Do you really want to invest in companies that are contributing heavily to Republican PACs? And if a company is run by Republican executives who do not share your values, do you really expect those executives to run that company in accordance with your values?
That’s why we’ve decided to dig in to help you figure out whether your investments align with your politics. And we’ve started with one of the most common retirement and investment portfolio products out there: S&P 500 funds.
If you own stocks or have a financial adviser, you almost certainly own one of these funds. Collectively S&P 500 funds hold more than $1 trillion dollars of people’s hard earned money.
But here’s the rub. According to our research team’s new analysis (which we will release in full soon), about 40% of the money you invest into each S&P 500 fund is being used to buy stock in companies that, in combination with their senior executives, donate overwhelmingly to Republican politicians and PACs.
In fact, we estimate that Democrats in this country currently have well in excess of $175 billion dollars invested into such Republican companies just through their ownership of S&P 500 funds.
What Is The S&P 500?
In order to understand what an S&P 500 fund is, and why they are so ubiquitous, you first need to understand what the S&P 500 itself is.
The S&P 500 is a stock market index created by Standard & Poor’s in the late 1950s that is made up of the stock of 500 large U.S. companies. According to the Motley Fool, the S&P 500 “is generally considered the best indicator of how U.S. stocks in general are performing.”
Think of the S&P 500 index as a big soup with 500 ingredients. On a quarterly basis, S&P’s investment committee picks which companies’ stocks go into the S&P 500 index. The committee chooses stocks to include based on company size, how easy the stock is to sell, and the company’s economic sector. The S&P investment committee (with the help of statistical computer models) also determines the quantity (or total dollar value) of each stock to include and makes sure all major industry sectors are covered.
The end result is a pretty good estimate of the entire U.S. stock market (or at least a solid barometer of large U.S. company performance). That’s why virtually every leading financial website refers to the S&P 500 as an indicator of what the stock markets are doing.
What Is An S&P 500 Fund?
An S&P 500 fund is a portfolio of stocks that are designed to track the S&P 500 index. Think of the fund like a shell company that has its own company stock (with a share price) but all the shell company itself does is own stock in actual S&P 500 companies and try to mirror the performance of the S&P 500 index.
When you buy stock in an S&P 500 fund, you effectively own a small piece of all of the underlying stocks that are designed to track the S&P 500 index. You might pay $500 per share to own a piece of an S&P 500 fund, but for that $500 you are getting to own slices of stock in 500 of the largest U.S. companies across the major economic sectors.
Now what is weird (at least to non-finance gurus) is that some of these S&P 500 funds – especially the biggest ones – own all 500 companies’ stock in roughly the same proportion as the S&P 500 index itself. Others, however, are made up of only a subset of the S&P 500 company stocks, say 40 or 50, that from a statistical perspective should closely track the S&P 500 index.
Financial analysts differ on how much of your total portfolio you should invest in an S&P 500 fund. Some say 10%; some say as much as 50% to 100%.
What Are The Biggest S&P 500 Funds Out There?
The biggest S&P 500 funds are:
- Vanguard’s S&P 500 ETF (NYSE: VOO), which has over $615 billion dollars invested in it;
- SPDR’s S&P 500 ETF Trust (NYSE: SPY), which has over $320 billion dollars invested in it; and
- iShares’ Core S&P 500 ETF (NYSE: IVV), which has over $230 billion dollars invested in it.
In total, these three S&P 500 funds together have more than $1.15 trillion dollars invested in them.
(If you have a financial advisor, he or she should be able to tell you pretty quickly whether you own an S&P 500 fund (you probably do) and in what amounts.)
What Are The Politics of These S&P 500 Funds?
That’s what our research team has spent the last few months figuring out.
Frankly, it wasn’t easy.
First, our team had to determine the politics of all of the companies in the S&P 500 index (most of them were in our database already — but not all of them).
Then, with that information in hand, our team had to analyze the specific holdings and weightings of each of the top S&P 500 funds (SPY, IVV, and VOO). While their holdings are very similar, they are not identical.
We will soon be releasing detailed political breakdowns for each of these three funds. But here are the punchlines:
- More than half of the companies included in these top S&P 500 funds are Republican-leaning; and
- About 40% of each fund’s total assets are invested in Republican-leaning companies.
This Leads To The Two Most Important Points You Should Take Away From This Article.
- If you have $10,000 of your money invested in an S&P 500 index fund, roughly 40% of that, or $4,000, is invested in Republican companies.
- In the top three S&P 500 funds alone (SPY, IVV, and VOO) about $460 billion dollars is invested in Republican companies. While it’s impossible to know exactly how much of that $460 billion dollars came from people that identify as Democrats, it has to be more than $175 billion dollars because 40% to 45% of the population votes for Democrats.
Think of that!
Millions of Democrats are out there voting at the polls, campaigning and doing everything they can to live their values, while their retirement and investment money is simultaneously supporting Republican companies. (And vice versa.)
What we are doing about it.
For years now, consumers have used our apps and website to figure out the politics of what they are purchasing. But that’s not enough. We want to make it easy for you to align your investments with your politics.
And we are working hard to achieve that goal.
In late 2020, we worked with Reflection Asset Management (RAM) to create the Democratic Political Contributions Index, which is an index housed on S&P’s website (and calculated by S&P) that is designed to track the S&P 500 BUT with one significant difference: the index includes only stocks from companies that give 75% or more to Democrats. (It’s basically our “Democratic S&P 500 index.”)
Financial writer David Leibowitz did an analysis of DEMZ in this article and concluded that “investing in the Democratic supportive companies using the same hypothetical mix of DEMZ would have yielded about 16.46% annualized return over 3 years.” This compares favorably to the returns of most S&P 500 funds over the same time frame.
And that’s not all. A few weeks ago we launched our political spending index, which is a subscription service that lets you compare company political contributions and vet stock portfolios (it will also eventually house our detailed breakdowns of investment products like SPY, IVV, and VOO).
We hope that by helping to bring these products and services to the market, we’ll one day see a world where people’s retirement and investment accounts no longer undermine their vote.
Please tell your friends about what we are doing and share this post widely!