Unscrupulous political fundraising

Here are three of the week's top pieces of financial insight, gathered from around the web:

Unscrupulous political fundraising

Aggressive fundraising tactics by political campaigns are especially likely to ensnare older Americans, said Shane Goldmacher at The New York Times. Manipulative donation requests can trick people of all ages into giving more money than they intended. But an analysis of refunded donations, "which often occur when contributors feel unsatisfied or duped," found that in 2020 "four times as much money was refunded to donors 70 and older as to adults under the age of 50." Some email campaigns specifically target older internet users with subject lines like "Social Security." The Democratic Congressional Campaign Committee sent emails saying "Final Notice," making it appear "as if actual bills are at risk of defaulting." The Trump campaign last year received a "surge of fraud complaints" after it "made donations automatically recur weekly," a practice widely seen as the "most egregious" fundraising abuse.

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Why ETFs beat the mutual fund

"America's 40-year love affair with the mutual fund looks to be over," said Stephen Foley at the Financial Times. Mutual funds have been losing ground to exchange traded funds for years. Now a proposal for a big hike in the capital gains tax for wealthy investors "could accelerate the shift." Mutual fund managers "are required to distribute the capital gain when a fund sells a stock that has appreciated." By contrast, managers of ETFs, which are structured as a single stock that investors can buy or sell, rarely have to sell stock in the companies they own. The flight to ETFs creates new mutual-fund risks, as shrinking funds might "find themselves with no choice but to sell the underlying stock."

Money losers turn to the stock market

Companies that are already public and losing money are using the current stock frenzy to raise cash, said Lu Wang and Vildana Hajric at Bloomberg. "Almost 750 money-losing firms have sold shares in the secondary market" in the past 12 months. They outnumber stock offerings from profitable companies by 2 to 1, the biggest margin since at least 1982. While many companies are unprofitable at the initial public offering, older companies that have been losing money for years — such as AMC and GameStop — going back to sell more shares represent a new trend. Analysts "warn that the flood of shares coming from money losers is becoming extreme" and could represent "a bad omen for the market."

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