Wall Street’s New Bet: Can You Profit from ‘American State Capitalism’?
Imagine for a moment that you had a direct line to the investment strategy of the world’s most powerful economic and military entity. What if you could align your portfolio not just with market trends, but with the strategic, long-term capital allocation of the United States government itself? This isn’t a hypothetical scenario from a financial thriller; it’s the audacious premise behind a new investment product shaking up Wall Street and catching the eye of global investors, including those in India.
In a move that perfectly captures the current geopolitical zeitgeist, asset manager Roundhill Financial Inc. has filed paperwork with the US Securities and Exchange Commission (SEC) to launch a fascinating new exchange-traded fund (ETF). Its proposed name: the Roundhill USA Government Portfolio ETF. Its proposed ticker symbol: USAG.
The fund’s objective is deceptively simple yet profoundly significant: to track and replicate the investment portfolio of the US government. This move isn’t just about creating another niche thematic ETF. It’s Wall Street’s attempt to package and sell a powerful, emerging investment thesis — the rise of “American state capitalism.” As Washington takes an increasingly interventionist role in the economy, directing billions into strategic sectors to counter China and secure its supply chains, this ETF proposes to let ordinary investors ride its coattails.
But is this a groundbreaking opportunity to invest alongside a powerful ally with deep pockets, or is it a clever marketing gimmick destined to be another “flavour-of-the-month” ETF? For Indian investors looking to diversify globally, the USAG ETF presents a compelling, if complex, proposition. This deep dive will unpack the strategy behind the fund, the geopolitical forces driving it, the specific companies in the government’s crosshairs, and a critical analysis of whether betting on Uncle Sam is a prudent move for your portfolio.
The Great Shift: Why is the US Government Buying Stocks?
For decades, the bedrock of American economic philosophy was free-market capitalism, with minimal government intervention. The idea of the government actively picking corporate winners and losers was often viewed with suspicion. However, the last few years have witnessed a dramatic paradigm shift, driven by a confluence of geopolitical tensions, a global pandemic, and technological rivalry.
The China Factor: A New Economic Cold War
The single biggest catalyst for this change is the escalating strategic competition between the US and China. Washington has woken up to the reality of its economic dependence on a geopolitical rival, particularly in critical sectors like semiconductors, pharmaceuticals, and rare earth minerals. This has led to a bipartisan consensus that the US must onshore or “friend-shore” key industries to protect its national and economic security.
Landmark legislation like the CHIPS and Science Act (providing over $52 billion in subsidies for domestic semiconductor manufacturing) and the Inflation Reduction Act (promoting clean energy and domestic manufacturing) are not just policy documents; they are declarations of a new industrial strategy. The government is no longer a passive referee but an active player, using public funds to steer private investment towards national goals.
Securing the Future: National Security as an Investment Thesis
Treasury Secretary Scott Bessent has been clear about the White House’s objectives. The focus is on industries deemed vital to national security. This isn’t just about defense contractors. It extends to the entire supply chain that powers a modern economy and military:
- Semiconductors: The brains behind all modern technology, from smartphones to guided missiles.
- Critical Minerals: Lithium, cobalt, and rare earths, which are essential for batteries, electric vehicles (EVs), and advanced electronics.
- Biotechnology: Ensuring domestic capacity for vaccine and drug production.
- Cybersecurity & AI: The digital battlegrounds of the 21st century.
By taking equity stakes or providing conditional funding, the government aims to ensure these companies prioritize American interests over pure profit motives, a move that turns national security policy into a direct investment driver.
The Post-Pandemic Reality: Rebuilding Supply Chains
The COVID-19 pandemic laid bare the fragility of global supply chains. The sight of a superpower struggling to source basic medical supplies like masks and ventilators was a stark wake-up call. The chaos in the shipping and logistics industries that followed further underscored the risks of over-reliance on distant manufacturing hubs. This has created a powerful political and economic mandate to bring manufacturing capacity back to the US, a trend known as onshoring or reshoring. What started as a tactical response to disruption has now solidified into a long-term strategic doctrine.
A Look Inside the ‘USAG’ ETF: Decoding the Government’s Portfolio
While the full methodology of the USAG ETF will only be clear upon its potential approval and launch, its premise is to build a portfolio based on publicly disclosed government stakes and financial support. This means tracking everything from direct equity investments to significant grants and loans that give the government influence over corporate strategy. So, which companies are already on Uncle Sam’s shopping list?
Case Studies: The Stocks in the Government’s Sights
Intel Corp. (INTC)
The Stake: Reports suggest the government holds a stake of around 10% in the semiconductor giant, facilitated through the funding mechanisms of the CHIPS Act.
The Rationale: Intel is the cornerstone of America’s strategy to reclaim leadership in advanced chip manufacturing. For decades, the US outsourced fabrication to companies in Taiwan (like TSMC) and South Korea (like Samsung). The CHIPS Act is a multi-billion dollar effort to reverse this, and Intel is its primary American champion. A government stake ensures Intel’s massive investments in new fabrication plants align with national security goals, creating a secure domestic supply of the world’s most critical technology.
MP Materials Corp. (MP)
The Stake: A significant position valued at around $400 million.
The Rationale: MP Materials owns and operates the Mountain Pass mine in California, the only integrated rare earth mining and processing site in North America. Rare earth elements are critical for magnets used in EVs, wind turbines, and advanced defense systems. China currently dominates over 80% of the global rare earths market, giving it a powerful geopolitical lever. By investing in MP Materials, the US government is directly backing a company that is fundamental to breaking this strategic dependency.
Lithium Americas Corp. (LAC)
The Stake: Approximately 5% reported ownership.
The Rationale: Lithium is the “white gold” of the 21st century, the irreplaceable element in the batteries powering the EV revolution and grid-scale energy storage. The US has vast lithium reserves but very little production. Lithium Americas is developing the Thacker Pass mine in Nevada, one of the largest known lithium deposits in the world. Government support for LAC is a direct play to secure a domestic supply chain for the future of transportation and energy, reducing reliance on China and other foreign sources.
United States Steel Corp. (X)
The Stake: A “golden share” arrangement has been reported, giving the government veto power over certain corporate decisions, especially regarding foreign takeovers.
The Rationale: Steel is a foundational industry for national defense and critical infrastructure. The concept of a “golden share” is a powerful tool of state capitalism. It allows the government to protect a strategic national asset from falling into foreign hands (as seen during the proposed acquisition by Japan’s Nippon Steel) without needing a majority ownership stake. It signals that some companies are too important to be left to the whims of the free market alone.
Trilogy Metals Inc. (TMQ)
The Stake: Around 10% reported ownership.
The Rationale: Trilogy Metals is focused on mining copper, zinc, and other base metals in Alaska. While not as exotic as rare earths, these industrial metals are the backbone of electrification and infrastructure development. Government investment here reflects a broader strategy to secure a domestic supply of all critical industrial inputs, insulating the US economy from global price volatility and supply disruptions.
The Bull Case: Is ‘Production for Security’ the New ESG?
Proponents of this investment theme, like Peter Tchir of Academy Securities, argue that this is far more than a passing trend. He has coined the term “Production for Security,” suggesting it could become as influential for capital markets as the ESG (Environmental, Social, and Governance) movement was over the past decade.
The logic is compelling:
- Implicit Government Backstop: While not an explicit guarantee, a significant government stake suggests that these companies are considered “too important to fail.” This could translate to a lower risk profile and access to favorable financing or rescue packages during downturns.
- Regulatory and Fiscal Tailwinds: Companies aligned with the government’s industrial strategy are first in line for lucrative contracts, subsidies, grants, and favorable regulations. This creates a powerful, sustained tailwind for revenue and profit growth that competitors lack. The US government is the world’s largest consumer, and it can direct its immense purchasing power towards these chosen champions.
- Long-Term Strategic Alignment: Geopolitical competition with China and the push for supply chain resilience are not short-term trends. They are multi-decade shifts. Investing in this theme means aligning your portfolio with one of the most powerful and enduring forces shaping the global economy. As Tchir states, “Owning what the government is buying makes sense on multiple levels.”
Just as ESG criteria forced a generation of fund managers to consider non-financial risks and opportunities, the “Production for Security” thesis may compel them to price in political will and national security priorities. If this happens, a wave of capital could flow into these strategic sectors, driving valuations higher.
The Bear Case: Gimmick, Lag, and Political Peril
However, for every compelling bull thesis, there is a healthy dose of skepticism. Critics, like investor Jack Ciesielski who called the filing “more duck food for the ducks,” warn that the USAG ETF could be a classic case of Wall Street packaging a hot narrative that disappoints in practice.
The Billion-Dollar Timing Lag
This is perhaps the most significant structural flaw in the ETF’s strategy. Government investments are typically disclosed to the public after they have been made. In an efficient market, speculation and insider knowledge often drive a stock’s price up well before any official announcement. The USAG ETF, by its very nature, would be a reactive fund. It would be buying shares after the initial, often explosive, price move has already occurred. This means ETF investors might consistently be buying high, providing a convenient exit for early investors who have already made their profits.
The ‘Flavor of the Month’ Thematic Trap
The world of ETFs is littered with the corpses of niche funds that launched with a great story but delivered poor returns. From cannabis ETFs to meme stock ETFs, narrative-driven products often attract a rush of “hot money” that quickly evaporates when the hype dies down. Steve Sosnick, chief strategist at Interactive Brokers, noted that the fund “demonstrates an attempt to monetize this administration’s far more activist approach.” The question is whether the monetization opportunity is for the fund’s investors or its creators.
The Ultimate Political Risk
The current industrial strategy is closely associated with the Trump administration’s worldview and has been largely continued by the Biden administration. But what happens after the next election? Or the one after that? A future administration with a more laissez-faire, free-market ideology could reverse course, unwinding government stakes and cutting subsidies. The priorities could shift from, say, fossil fuel-related infrastructure to renewable energy, or vice-versa. An investment thesis so closely tied to the political whims of a single government is inherently volatile and carries a unique risk that cannot be diversified away by conventional means.
Market Distortion and Moral Hazard
On a broader level, critics warn that this level of government intervention risks distorting market signals. It can prop up inefficient companies, stifle innovation from unsupported competitors, and create a moral hazard where companies take on excessive risk, assuming the government will bail them out. This shifts the balance of power from the private sector to the state, the long-term consequences of which are unknown.
The Indian Investor’s Perspective: Should You Bet on Uncle Sam?
For an Indian investor, the emergence of the USAG ETF is more than just a curiosity. It offers a window into global capital trends and presents a unique, albeit risky, diversification opportunity.
Parallels with India’s Own Strategy
The concept of government-led industrial strategy is very familiar to India. The Atmanirbhar Bharat initiative and the Production Linked Incentive (PLI) schemes are India’s own version of state capitalism. The government is actively promoting domestic manufacturing in sectors like electronics, defense, and pharmaceuticals. Indian investors have already seen how government focus can create multi-bagger stocks in themes like defense PSUs or railway infrastructure. This makes the American version of the same strategy intuitively understandable.
How to Invest and the Alternatives
Should the USAG ETF be approved, Indian investors could potentially invest in it through international brokerage platforms under the RBI’s Liberalised Remittance Scheme (LRS). However, it’s crucial to consider the alternatives:
- Broader Thematic ETFs: Instead of this niche fund, one could invest in broader, more established ETFs focused on semiconductors (e.g., SMH, SOXX) or critical minerals (e.g., REMX). These capture the underlying theme without being beholden to the specific, and potentially late, stock picks of the government.
- Building Your Own ‘Sarkari’ Portfolio: A savvy investor could take a DIY approach. By tracking announcements from the US Department of Commerce or Department of Energy regarding CHIPS Act grants or strategic investments, one could preemptively buy the stocks of beneficiary companies. This requires more research but offers the potential for better entry points than a reactive ETF. The same logic can be applied in India by tracking PLI scheme approvals.
Weighing the Risks and Rewards
For an Indian portfolio, a fund like USAG should be considered a tactical, satellite holding, not a core position. It is a high-risk, high-narrative bet on a specific political and economic worldview. The potential reward is alpha generated from powerful government tailwinds. The risk is underperformance due to timing lags and the extreme political volatility of the strategy.
Conclusion: A Sign of the Times or a Solid Strategy?
The proposed Roundhill USA Government Portfolio ETF is undeniably a “fascinating sign of the times.” It crystallizes a monumental shift in how the world’s largest economy operates, where the lines between national security, politics, and capital markets are blurring like never before.
The bull case is seductive: invest alongside the world’s most powerful entity in companies deemed critical for the future. The bear case is sobering: it could be a poorly-timed, politically-risky marketing gimmick that enriches its managers more than its investors.
For the discerning Indian investor, the key is to look past the hype. The underlying theme of “Production for Security” and strategic onshoring is real and likely to persist for years. The question is whether the USAG ETF will be the best vehicle to play this theme.
The prudent approach would be to watch and wait. See if the fund gets approved. If it launches, analyze its portfolio, its expense ratio, and its initial performance. Use its existence as a research tool to identify companies benefiting from this trend, but think twice before blindly outsourcing your investment decisions to a strategy that will always be one step behind the news. In this new era of state capitalism, the real alpha may lie not in following the government’s disclosed moves, but in anticipating them.
