ETFs Helped By Midterm Election Changes

November 25, 2014

Tax Holiday or Corporate Tax Reform: Technology ETFs

The U.S. corporate tax rate is very high compared with the rest of the world, and the U.S. taxes foreign earnings when the cash is returned to the U.S. This policy is at odds with the trend toward lower corporate taxes.

As a result, global companies have kept large sums of cash abroad rather than returning it to the U.S. For an economy short of growth, having a tax-holiday on these assets may bring the cash home and offer increased opportunity for domestic investment.

Technology firms are the largest holders of cash in foreign accounts, according to a report in the Financial Times.

A tax-holiday may spur one-time dividends as well as further investment. While cutting corporate taxes may be politically unpopular, the expected trend on taxes is lower and a one-time event could be cast as an economic growth incentive rather than a corporate tax cut.

Real Possibilities

Because of Republicans gaining control of the Senate, these three policy options and four sectors are at the top of a limited list of policies benefiting or penalizing particular sectors. We’ll see how the political haggling works out.

Either way, investors should be careful when mixing politics and portfolios. Politics doesn’t work the same as business and its compromises often take place in public, with lots of posturing. Investors may find the posturing difficult to stomach and hard to analyze.

Bias is the biggest challenge political analysis creates for investors.

Don’t Overdo It

In 17 years with CLS, I’ve been fortunate enough to travel around the country speaking to clients who work with a financial planner using CLS. Invariably, politics comes up in the question-and-answer time.

My belief is investors tend to overreact to the swings in political mood and politics in general. Some investors seem to be watching cable news on the TV, binge-watching “House of Cards” on their iPads, and monitoring their portfolio all at the same time.

If you feel like your political views are shaping your investment strategy, turn off the TV. You’ll likely be happier and your portfolio may perform better.

CLS Investments is an Omaha, Neb.-based third-party investment manager and ETF strategist. CLS began to emphasize ETFs in individual investor portfolios in 2002, and is now one of the largest active money managers using exchange-traded funds, with more than $2 billion invested. Contact CLS’ Chief Investment Strategist Scott Kubie at 402-896-7406 or at [email protected]. Please click here for a complete list of relevant disclosures and definitions


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