Every quarter, Strategas rebalances the Global Policy Opportunities ETF (ticker: SAGP) to reflect the latest quarterly lobbying allocations made by companies in the Fund’s universe. At the beginning of March, the portfolio was rebalanced and reconstituted to reflect fourth quarter 2023 lobbying data.

This quarter’s adjustments include changes to the US-Large Cap constituents, with two companies entering and two exiting, as well as changes to the US Small & Mid-Cap segment with four companies entering and four companies exiting. There were no constituent changes to the Non-US Large-Cap segment this period.

In December, Strategas adjusted its recommended asset allocation to a target weight of 60 percent domestic equities and 40 percent non-US equities. As such, the Fund has adjusted its US and non-US weightings accordingly, reducing the target Non-US weight from 44 percent to 40 percent and increasing the target US weight from 56 percent to 60 percent. The Fund maintains a 90 percent Large-Cap and 10 percent Small and Mid-Cap target allocation. All target weights exclude cash.

The Industrials sector is the Fund’s largest weight at a target of 31.0 percent of the Fund. The sector is also SAGP’s largest overweight position relative to its benchmark, the MSCI All Country World Index (ACWI). The Health Care sector follows at a target of 25.8 percent of the Fund, and it is also the second most overweight position relative to the ACWI. Consumer Discretionary is the Fund’s third largest weight at a target of 10.2 percent, roughly in line with the ACWI’s weighting.  

In 2023 there was a record $4.2 billion spent on lobbying according to public lobbying disclosures, including $1 billion spent by S&P 500 companies. This record spending occurred despite limited legislative action in Congress. In fact, just a handful of policy issues that Strategas tracks for S&P 500 companies experienced more companies lobbying on the issue in 2023 compared to 2022. But those few issues that did Strategas did assess as having a growth in the number of companies disclosing lobbying on the issue – such as R&D tax issues and artificial intelligence - are significant to the investment landscape in our view and we believe could produce an earnings benefit for companies moving forward.

Source: Strategas Securities as of 3/14/2024

The House passed a rare bipartisan tax bill in February 2024 and, as of publishing, the bill awaits a vote in the Senate. We believe the bill has the potential to add election year stimulus into the US should it pass. The bill would allow companies to expense their R&D expenditures in the year incurred rather than amortize the expenditures over five years, reinstate 100 percent capital expensing, and allow for more generous interest deduction – among other changes. The business tax provisions in the bill are retroactive, which results in the legislation creating $136bn of benefit in fiscal year 2024, $83bn of which is tied to the R&D change, based off Strategas’ analysis of the Congressional Budget Office score of the bill. In review S&P 500 companies’ 2023 lobbying activity, we count 16.4 percent of companies lobbying on the issue in 2023, an increase from 12 percent in 2022. For SAGP, of its 100 holdings, 19 percent lobbied on R&D as of Q4 2023 based off Strategas’ analysis.

The Fund holds an 18.8 percent target weight in Aerospace & Defense. These companies have the potential to be ‘twice blessed’ by current policy issues in our view as they are a potential beneficiary of the tax bill via the R&D and capital expensing provisions, but also would benefit from the federal government passing appropriations. The industry has the threat of a 1 percent cut to the Defense budget via sequestration on April 30^th looming over it. Yet industry lobbying for Congress to pass spending bills to avoid sequestration appears to be starting to work and dealmaking in February has created optimism around appropriations. If Congress finishes its appropriations, then the federal Defense budget will get a 3.3 percent boost for fiscal year 2024. Funding for the national security supplemental, which includes Ukraine, Israel, and the Indo-Pacific, would be a third benefit but remains a more difficult reach. Still, we expect once appropriations are finished there to be another effort at the national security supplemental’s passage.

The number of companies lobbying on artificial intelligence (AI) caught our eye when going through Q4 2023 lobbying disclosures. At mid-year 2023, we counted less than 9 percent of S&P 500 companies lobbying on AI, yet during our year-end analysis we measured 13.6 percent – or 68 companies – lobbying on the issue across sectors in 2023. Of the Fund’s 100 holdings, 8 percent lobbied on AI as of Q4 2023. We noticed that AI came up less frequently in SAGP’s Small and Mid-Cap US holdings.

Constituents Added To The Fund: 2023 Q4 Rebalance

Constituents Sold From The Fund: 2023 Q4 Rebalance