No Joke: You Can Now Legally Invest in Your Political Party

Life can sometimes be a lot like a Las Vegas casino -- money is bet on everything. Throughout the presidential campaigning of 2016, oddsmakers were taking bets on everything from who would become the next president to which political party would win the Senate. Of course, these bets were done in the secondary markets, where liquidity can be low, and your odds of success quite slim.

We've never ever seen ETFs like this before

However, one financial firm is looking to do something that's never been done before in the stock market: meld politics with investments into a tradable, real-world asset. EventShares, the company in question, just brought three conceptually brand-new exchange-traded funds, or ETFs, to market.

An ETF is nothing more than a basket of stocks that sticks to a theme the investor is after. For example, if you wanted to own small-cap growth stocks, there are probably a few ETFs for that. If you believe healthcare will be the fastest-growing sector over the next decade, there are sector- or industry-focused ETFs you can buy that'll suit your needs.

If you want to invest your money specifically in Southeast Asia, there are ETFs for that, too. In fact, according to the Financial Times, as of Jan. 2017, there are nearly 2,000 ETFs listed on U.S. exchanges, and they account for around 30% of all dollar value traded, as well as more than 20% of share volume, in the U.S.

There are a number of advantages to ETFs, including the fact that you don't have to be an investment genius to buy one. The beauty of an ETF is that it allows for industry, geographic, or broad-market diversity, and you remain in complete control of your risk tolerance. Best of all, someone else does all the grunt work, with the investor simply paying an annual management fee, known as an expense ratio (which covers other costs beyond just managing the portfolio), to own shares of an ETF. While expense ratios can vary based on the investment firm, fund focus, and portfolio turnover, they usually range around 1%, if not lower.

Would you invest in your political party?

Now that you have a better handle on what an ETF is and how it can sometimes help the average investor, you can truly appreciate how out-of-the-box EventShares' three new ETF offerings are. Two of the offerings allow investors to buy into their political party... sort of. The Republican Policies ETF (NYSEMKT: GOP), which of course has the "GOP" ticker symbol, and the Democratic Policies ETF (NYSEMKT: DEMS), are designed to give investors exposure to publicly traded companies that are believed to benefit the most if Republican or Democrat policies are enacted.

For example, the Republican policies ETF is designed to hold between 30 and 75 equally weighted securities that would benefit if the GOP's agenda were advanced. (These can be overseas securities, as well as debt instruments, too.) These policy-driven ideas include a decrease to regulations for companies in the financial sector, an increase in the defense budget, a decrease in the U.S. corporate income-tax rate, and a reduction in regulations surrounding fossil-fuel drilling requirements, to name a few.

Comparatively, the Democratic Policies ETF will focus on securities that would benefit if a more progressive tax system were implemented, a single-payer healthcare system were introduced, minimum wages were increased, or renewable energies and environmental protections became a prime focus of Congress.

Each fund bears a 0.75% net annual expense ratio, which appears reasonable given how active the fund managers could be.

But wait... there's more

EventShares is also introducing the U.S. Tax Reform ETF (NYSEMKT: TAXR), which will invest in securities believed to be the most positively impacted by proposed tax reforms.

For those who may not recall, President Trump recently outlined his vision of tax reform, which calls for a reduction in the number of individual tax brackets to three from seven, as well as simplifies the individual tax code by boosting the standard deduction and eliminating a number of deductions and credits. On the corporate side of the equation, it looks like the GOP will aim to cut the peak corporate income-tax rate to 20% from 35%, which is among the highest in the world. The U.S. Tax Reform ETF would attempt to buy into securities that would most directly benefit from such reforms.

Unlike the other two ETFs, the U.S. Tax Reform ETF comes with a slightly higher net expense ratio of 0.85%.

Should you buy a policy-driven ETF?

At this point, the question we really have to ask is: Should policy-driven ETFs be in your portfolio? The honest answer is, I don't know. It's really going to depend on your investment time frame, what you're trying to accomplish in terms of annual returns, and whether you really want to tether your money to Congress.

Personally, the idea of aligning my money with Congress makes me shudder a bit. Congress has been historically bad at passing legislation over the past couple of years, and the inability of the two parties to work with one another makes an investment into a policy-driven ETF risky. Of course, if EventShares' research metrics prove accurate, and reforms do come for the ETF you purchase, you may be rewarded with handsome returns.

I'd probably suggest a wait-and-see period to familiarize yourself with the holdings and turnover in these ETFs before considering dipping your toes in the water.

10 stocks we like better than U.S. Tax Reform FundWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now… and U.S. Tax Reform Fund wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of October 9, 2017

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.