Do Fund Managers Let Their Politics Pick Their Stocks?
Fund managers allocate more to companies led by executives who share their political affiliation. The tilt brings no performance benefit, and it adds risk.
Millions of households hand their savings to mutual funds on the assumption that professional managers pick stocks on the merits. This research asks whether something more human also creeps in: do managers favor companies whose leaders share their politics?
Using political donations to identify the partisan leanings of both fund managers and corporate executives, the study finds that managers allocate more of their portfolios to firms led by executives and directors from their own side of the aisle.
The tilt is not rewarded. Funds with more partisan bias show no performance advantage, and they carry higher idiosyncratic volatility, exactly the kind of risk diversification is supposed to wash out. The bias is strongest among less experienced managers, in informationally opaque firms, and when the sitting president comes from the manager's own party.
The pattern looks less like superior information and more like in-group favoritism, a reminder that even professional money management is not immune to identity. The findings drew coverage from the Wall Street Journal, CNBC, Reuters, Barron's, and Money Magazine.
The Takeaway
Shared partisanship between fund managers and corporate executives shapes portfolios without improving them. It adds idiosyncratic risk instead.