September 2025
IN THIS ISSUE
Wall of cash
No free lunch
Active Government
Active managers attempt to pick stocks that will outperform the broader stock market. But unfortunately for investors, data consistently shows that active funds have generally failed to survive and beat their index counterparts over longer time horizons.
Last month Morningstar reported that just 33% of actively managed mutual funds and ETFs beat their average index fund counterpart from July 2024 through June 2025. Notably, this period included ample volatility tied to tariffs and geopolitical risks - volatile conditions when active managers claim they will outperform. And in the past 10 years through June 2025, just 21% of active strategies survived and beat their index benchmarks, so this is not just an atypical past year.
So what’s up with the federal government getting into “Active Management”?
Last month the Trump Administration announced a 10% ownership stake in Intel. Under the Biden Administration, the U.S. CHIPS and Science Act awarded grants to Intel and other companies to boost U.S. semiconductor development, some of which were previously paid and some of which were not. What is different is that in 2022 the federal government issued those funds as grants, whereas now the federal government is now receiving shares in exchange for those funds.
The details matter a lot here. For example, the federal government’s shares will vote in agreement with the Board of Directors, not as independent voting shares from the government. But does this voting structure really mean that Intel’s leadership can make decisions in the best interest of the company versus in the best interests of Washington?
Wall Street figures have strongly criticized governmental engagement in picking winners and losers, warning that "all of us lose" when the state becomes involved in this game. Earlier this month Citadel CEO Ken Griffin slammed the Trump administration for making deals that allowed large corporations to avoid the full extent of its tariff policies, calling this government favoritism towards well-connected companies "not the American story" and "crony capitalism".
Griffin also noted that the "line outside the White House of every business arguing why they should be exempt from paying tariffs... is nauseating". Corporate political maneuvering introduces significant risk factors, shifting a company's focus away from sound business practices. When a government becomes involved in picking winners, companies might find their core competency shifting from driving innovation to driving the right favors from Washington. Griffin further warned that companies attempting to win favor from a current administration "could find themselves disliked or having to make new deals when a new person takes the nation's highest office".
“Active Government” introduces harmful externalities for a wide range of stakeholders, extending well beyond the directly regulated company. For example, from the Cato Institute’s recent article The Government’s Intel Stake Is Antithetical to American Greatness:
Other U.S. technology firms might feel pressured to buy the favored company's products to "curry favor with or avoid being targeted by an administration" that has a financial interest in its success. This could lead to bad technology choices by private firms.
Competitors of the favored firm may find themselves at a disadvantage when seeking government contracts, subsidies, or regulatory relief.
Private capital may flow to the politically favored company (like Intel) and away from innovation leaders, not for economic reasons, but because "Uncle Sam now has a thumb on the scale".
When the government acts as a major shareholder, the company faces constant pressure to align corporate decisions—such as facilities location, hiring and firing, research and development priorities, or corporate finance decisions like dividends or stock buybacks—with the goals of the party in power. Investors will be rightly questioning whether Intel is prioritizing bureaucratic preferences over capitalistic efficiency.
No matter where you fall on the political spectrum, government ownership in individual companies creates potential for profit - and potential for losses - for the American taxpayer right alongside active managers. Aside from the challenged underperformance of active managers, government ownership of individual companies can also compromise good governance, introducing significant uncertainty for investors. And investors do not like uncertainty.
ONE MORE THING…
Wall of cash. Remember, folks, markets weigh countless complex economic factors. Sure, capital rotating out of bonds and into equities can offer support to equities prices. But if investors are rotating out of bonds because rates are decreasing to prevent a recession that can harm business conditions and equities prices. $7 trillion 'wall of cash' worry is looming for investors once Fed interest rate cuts start
No free lunch. Tariff revenue comes from American importers just like a tax, and tax increases suppress economic activity. Whether through increased inflation or decreased employment or reduced production or any other number of metrics, there is no free lunch tariffs. Job growth stalls: US economy added just 22,000 jobs in August and unemployment rose to highest level since 2021
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