Want a tip on November’s election results? Look no further than the Dow Jones Industrial Average.

The presidential election is now less than a month away and researchers are looking to some of the largest indexes for clues to the outcome. Past market performance has been incredibly successful predicting the eventual winners over the past century, a new report from the Leuthold Group found. Gains in the S&P 500 in the three months running up to Election Day usually led to an incumbent win. It was true in 20 of the last 24 elections dating back to the original East vs. West Coast battle between California’s Herbert Hoover and New York’s Al Smith in 1928, the report cited.

It’s a stunning stat that may shed light on who’s sitting in the Oval Office come January. “Our money is on a free service with an excellent record over the last 100 years: The stock market!” Leuthold CIO Doug Ramsey Chief said in the report.

Exit Polls

While the S&P 500 turned in stunning results, Ramsey decided to push the historical data even further. He found that gains in the Dow during an 11-week run-up to the election ended with incumbent party victories in 12 of 13 cases, while declines hit the sitting party with a loss in 10 out of 11 polls. It’s a success rate of 92%, Ramsey said.

“Just for fun, we queried our database to find the ‘optimal’ market-based election rule,” he said in the report. “This unapologetic curve-fitting exercise yielded a decision rule.”

September’s market gains were the fifth on the trot and tenth in the last 11 months, according to Leuthold, which would presumably bode well for Democrats. If the S&P 500 end October strong, it would mark the first time since 1942 that the seasonally “weak” period from May through September finished in the green, according to the researcher. The Dow Jones is up roughly 12% year to date.

Bet the Vote. Sure, better market performance is a plus for incumbents, but are investors willing to put their money where their ballot boxes are? Interactive Brokers launched event contracts on economic events in June, letting customers use exchange-listed contracts to take sides on yes-or-no questions regarding the US economy. Next up, politics.

The online brokerage, led by billionaire Thomas Peterffy, said last week that it will offer the same yes-or-no trades on a host of political outcomes, including the presidential race and control of the US Senate. Since it launched on Oct. 3, the company said it has facilitated over 1 million contracts.

Who needs a trip to the casino, when you have an online exchange?

Who pays taxes anymore, am I right?

New exchange-traded funds are doing what the super wealthy have done for decades: finding ways to kick their tax bills down the road and let their investments compound tax-free. Issuers like Cambria Investment Management and Stance Capital are launching new ETFs to do just that, allowing investors to purchase the funds with already appreciated stocks. By trading in their holdings for the ETF, investors won’t have to worry about selling those securities and realizing capital gains.

It’s a strategy that’s been used by the world’s rich in so-called exchange or swap funds for decades, but is now available in a consumer-friendly ETF. The new products open up these tax-deferral techniques to retail investors and come with much lower fees, according to Cambria CEO Meb Faber.

“We like to launch funds that don’t actually exist,” he told The Daily Upside. “[A client] could be Warren Buffett, if he wants to contribute a portfolio, or just some dude walking down the street.”

Baby Got Tax

While the new funds will be technically open to the masses, they won’t likely attract them. Faber said the Cambria Tax Aware ETF (TAX), which is set to launch in December, is expecting to field up to 100 customers with anywhere from $200,000 to $1 million in assets — not exactly mom and pop. But it could be beneficial for those with large unrealized capital gains. The TAX fund will target value and quality stocks with little to no dividend yields, which also helps keep tax bills down.

The Stance Sustainable Beta ETF (STSB), which is slated for a November launch, provides US equity exposure to companies with ESG principles.

“There are many things in the tax code that are considered loopholes, or legal ways to pay taxes at a later time,” said Joe Schmitz Jr., CEO of Peak Retirement Planning, adding that his firm uses similar tax strategies, like donor-advised funds or charitable remainder trusts.

Death and Taxes. Like many of Wall Street’s tax strategies, it’s not about avoidance, but deferral. Investors are still on the hook for those capital gains, and will have to pay up once they eventually sell their shares of the ETFs — if they sell at all.

Inherited assets are generally stepped up to fair market value after the investor’s death, which means capital gains can effectively get reset or become significantly reduced. It’s the same with many other investments, like real estate, for instance. “When the dust settles … it’s just another example of the inappropriate use of ETFs,” said Fordham School of Law professor Jeffrey Colon, a proponent of ending tax-free ETF contributions.

Others, like Maber, say the new funds help folks lessen their tax obligations and take advantage of strategies that have long been in play for the richest investors. “My thinking was, why not take the next logical step?” Faber said. “There are funds for the super rich, so why not let everyone contribute a portfolio and get an ETF in return?”

The funding train just keeps right on rolling.

Two wealthtech companies closed on significant deals this week, highlighting a robust demand for technology-based financial planning and investment tools. Digital financial planning firm Facet raised $35 million, led by private equity firm Multiplier Capital: The funds will go toward tech development and expanding its services. The Baltimore-based investment advisor connects clients with affordable financial planners through a membership system.

Quartr, a Stockholm-based research and data platform used by both institutional and retail investors, secured a $6 million investment from Altos Ventures. The company provides clients access to first-party data from more than 10,000 public companies. Altos will also join Quartr’s board.

It’s all part of a broader trend in the wealthtech sector, which is projected to top $9.43 billion by 2028. Wealth management “suffers from legacy technology and business models that are ripe for disruption,” Facet CEO Anders Jones told The Daily Upside. “It’s no surprise that so much money is pouring into the sector.”

Funding the Future

Every industry is trying to leverage new technology, and for wealth managers, that innovation comes in the way of up-to-date market analytic tools and artificial intelligence-powered programs, like those used to quickly summarize documents.

According to a recent survey from Mercer, some 91% of managers are currently using or planning to use AI within their investment strategy or asset-class research. So far this year, we’ve seen plenty of big-ticket investments going toward exactly those kinds of tools:

• Online estate-planning platform wealth.com raised $30 million led by Google Ventures, and aims to double its staff of 50.
• Powder, which offers AI tools for organizing brokerage documents, secured $5 million from various Silicon Valley investors.

“It’s clear that the world is moving toward more transparent service and higher-quality advice that aligns the advisor with the consumer,” Jones said.