Worried about trade wars? Here is a way to invest at home and potentially take advantage of deregulation and tax reform while reducing tariff risks

Watch Video https://oshares.com/worried-about-trade-wars/

A debate continues amongst investors about what is the best way to invest is while the rhetoric of tariffs and trade wars rages on.

Should you rely on the skills of an active manager to select investments for you, or can rules based actively managed indexes do a better job at a fraction of the cost?

What is a rule based actively managed index? Let’s start with a real-world example.

Last December when it became clear that it was likely that Tax reform would pass I was in the midst of rebalancing my investment portfolio preparing for the tax year-end tax and repositioning for the new year.

It occurred to me that the companies that would accrue the majority of the benefits of deregulation and the new tax reform proposals would be domestic companies that had the majority of their revenues in the US. After all, large cap S&P companies have almost half of their sales overseas where they already took advantage of lower tax rates so on average they were only paying around 25% at home.

A domestic company that sold everything in the US was paying as much as 35% tax and was about to get a once in a lifetime benefit when their corporate tax rate was lowered to 21%.

Also companies that have the majority of their revenues in the US are less affected by tariffs and trade wars.

But how to find them?

Then it hit me, many are in the Russell 2000 index. They are America’s small and midcap companies. Here is the challenge. Many of the companies in the Russell 2000 don’t make any money. If you are not making money you are not paying taxes and I don’t want to invest in companies that are profitless anyway. Also, the Russell 2000 has many real estate REITs that are not taxed and get no benefit from tax reform and I don’t want to own REITS in a rising rate environment as they tend to underperform.

What I wanted was to find someone that could sift through every company in the Russell 2000 and find me all the ones that were making money, had high quality balance sheets and were not REITS.  These type of companies are the ones that were potentially going to get a material benefit from deregulation and tax

Finding a manager to do this work would be extremely difficult, who can read 2,000 income statements and balance sheets every quarter? That's why small cap managers tend to specialize in a single sector of the Russell 2000 like biotech or consumer stocks where they can manage and research a smaller universe of stocks.

But I wanted to invest in any high-quality company that was going to benefit from deregulation and tax reform across all sectors of the Russell 2000.

What better way than to go back to the creator of the Russell 2000, the FTSE/Russell company that created and maintains the index. They have hundreds of people doing the research every day. Why not hire them to work for me?

One of my portfolio companies I am an investor in is called O’Shares ETFs they create ETFs from indexes, I am also the Chairman of O’Shares. I called up the CEO, Connor O’Brien and asked him if he could work with FTSE/Russell to create a subset of the Russell 2000 that fit my needs so I could invest in it. I just wanted the companies in this new ETF that had the majority of their revenue in the US, were profitable and had high quality balance sheets.

I’m a big believer in the concept of diversification, so I told Connor that I also wanted this new index to be capped at a 3% weighting for any individual stock.

He called FTSE/Russell, who agreed to create the new index and O’Shares ETFs launched OUSM a small and mid-sized ETF listed on the NYSE with over 200 companies that gives me exactly what I want. A large diversified basket of profitable companies that have the potential to be the major benefactors  of deregulation and tax reform and have high quality balance sheets.

With OUSM I am now a small cap investor ready for deregulation tax reform and trade wars!

I love lower taxes.

OUSM Fact Sheet

OUSM Holdings

For more information visit OUSM fund page. See the Prospectus for specific risks regarding the Fund.

Companies involved with the internet, technology and e-commerce are exposed to risks associated with rapid advances in technology, obsolescence of current products and services, the finite life of patents and the constant threat of global competition and substitutes.