Two New ETFs Let You Trade Like A Washington Insider (2024)

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If you’ve ever wanted to experience the investment performance of a senator without having to run for office, two new ETFs are doing their best to make that possible. While they won’t allow you to mimic all the trades of your favorite congressperson, they will let you invest along party lines.

It might not seem like it should be legal, but the minimal limitations on stock trades by Washington insiders could help them outperform the market. If you’re privy to discussions about new legislation that could affect a company’s stock price, you might be able to make some opportune investment decisions—at least, that’s the theory.

Subversive Unusual Whales Democratic ETF (NANC)

This ETF invests in stocks that Democratic members of Congress and their spouses buy or sell. Its ticker symbol is likely a hat tip to the woman who led the House Democrats for two decades—and may be one of the richest members of Congress in part due to her trading strategies.

Subversive Capital Advisor LLC is the Registered Investment Advisor that offers the fund. This New York-based company first registered with the SEC in September 2021. It’s a small firm that had $13 million in assets under management at the end of Q1 2023.

In the investing world, “whale” is slang for a large or influential investor. Unusual Whales is a platform that tracks options trades as well as data on trades by members of Congress. It provides the data that Subversive uses for NANC and its other congressional trading ETF, KRUZ. Unusual Whales also publishes the congressional “insider trades” it aggregates on the politics section of its website.

NANC Performance and Holdings

Because this fund began trading on Feb. 7, 2023, its track record is too short to evaluate whether it will achieve its goal of long-term capital appreciation. But here’s how it’s performed in its short history compared to the U.S. stock market, for which we’ll use the popular iShares Core S&P 500 ETF (IVV) as our proxy. We chose IVV as a comparison because we assumed that someone investing in NANC is hoping to beat the market.

IVVNANC
Price on Feb. 7, 2023 $417.12$25.47
Price on June 21, 2023$438.12$27.33
Change in value+5%+7.3%
Expense ratio0.03%0.75%

Over NANC’s short existence, it has outperformed IVV, even after expenses. Of course, this finding is just a snapshot, and the comparison would be different if we examined different dates. NANC simply hasn’t existed for long enough to say whether it will outperform the total stock market over time.

Here’s now NANC’s holdings compare to IVV’s. Both are heavily weighted toward technology stocks, with an allocation of about 37% for NANC compared to 27% for IVV.

Top 10 Holdings NANC vs. IVV as of June 21, 2023
NANCIVV
MicrosoftApple
AmazonMicrosoft
Alphabet Inc Class CAmazon
AppleNvidia
NVIDIAAlphabet Class A
SalesforceTesla
Walt DisneyAlphabet Class C
CrowdStrike Holdings Class AMeta Platforms Class A
TeslaBerkshire Hathaway Class B
APi GroupUnitedHealth Group

Subversive Unusual Whales Republican ETF (KRUZ)

NANC’s counterpart is KRUZ, an ETF that invests in stocks that Republican members of Congress and their spouses buy or sell. Its ticker symbol is likely a reference to a well-known Republican senator from Texas (the ticker “CRUZ” was already taken).

KRUZ Performance and Holdings

Like NANC, KRUZ’s goal is long-term capital appreciation, and it began trading on Feb. 7, 2023, giving us little to evaluate in terms of performance. Again, we’re comparing it to IVV under the assumption that an investor in KRUZ wants to beat the market.

IVVKRUZ
Price on Feb. 7, 2023 $417.12$25.27
Price on June 21, 2023$438.12$25.00
Change in value+5%-0.01%
Expense ratio0.03%0.75%

Unlike NANC, KRUZ underperformed IVV, especially after expenses. Again, this finding is just a snapshot.

Here’s now KRUZ’s holdings compare to IVV’s. KRUZ is most heavily weighted toward energy stocks at 19%, followed by technology stocks at 18%. IVV has a 4% allocation to energy stocks and 27% to tech. After tech, IVV’s highest allocation is to healthcare, at 14%.

Top 10 Holdings, KRUZ vs. IVV, May 25, 2023
KRUZIVV
AccentureApple
Shell PLC ADRMicrosoft
Energy TransferAmazon
Philip MorrisNvidia
NetflixAlphabet Class A
IntelTesla
United TherapeuticsAlphabet Class C
Comfort Systems USAMeta Platforms Class A
Elevance Health IncBerkshire Hathaway Class B
Dow IncUnitedHealth Group

NANC vs. KRUZ

Democrats are known for preferring laws that redistribute wealth. Republicans have a reputation for favoring laws that increase personal wealth. Neither fund has been in existence long enough to give us a meaningful performance history. While as of June 21, 2023 NANC is beating KRUZ, that could certainly change quickly.

NANCKRUZIVV
Price on Feb. 7, 2023$25.47$25.27$417.12
Price on June 21, 2023$27.33$25.00$438.12
Change in value+7.3%-0.01%+5%
Expense ratio0.75%0.75%0.03%

NANC is more heavily concentrated in its top 10 holdings, which make up 43.4% of the fund’s assets. IVV’s top 10 holdings make up 29% of its assets, while KRUZ’s make up 20%. With its concentrated position in the tech sector and its top 10 holdings, NANC is likely to be far more volatile than KRUZ.

How ETFs Can Track Congressional Insiders’ Trades

NANC and KRUZ can engage in whale watching because members of Congress must publicly disclose their trades under the Stop Trading on Congressional Knowledge Act of 2012 and the Ethics in Government Act of 1978.

These laws require members of Congress to disclose all trades of stocks, bonds, commodities futures and other securities exceeding $1,000. Disclosure forms are due within the shorter of 45 days of the transaction date or 30 days of the notification date when they learn about the trade, presumably from their investment managers.

These disclosures are called Periodic Transaction Reports (PTRs), and the law allows up to 30 more days for them to appear on the Senate and House websites. PTRs show a range of values for each trade (for example, $100,001 to $250,000), not the actual amounts traded.

Tracking Periodic Transaction Reports

PTRs are not easy to find: They’re buried several nonspecific menu items deep on the website of the U.S. Senate Select Committee on Ethics. You can find them by going to the Rules & Standards of Conduct tab, then going to the Financial Disclosure page, then clicking on Resources, then clicking on Senate Public Financial Disclosure Database. It’s right below the link to the eFD (electronic financial disclosure) page where senators and representatives can file their transaction reports instantly—which begs the question of why the law still gives them so many days to file.

Anyone can then get access to the database by agreeing that they understand a few things, one of which is that the information in the reports can’t be used for any commercial purpose. Violating that law can result in a civil penalty of up to $10,000, and possibly other remedies, which might not be enough to dissuade a company charging an annual fee of 0.75% on $11.24 million in fund assets.

Once you check the box to get access to the database, you can search for reports by filer name, filer type, report type and date filed/received. You could search, for example, for all periodic reports filed by senators from 2/7/23 through 5/25/23 and get a list of 35 reports from 17 senators. You could look at the most recent report, filed on 5/17/23 by Sheldon Whitehouse (D-RI), and see what he and his spouse sold on 4/18/23.

If you don’t want to dig through—and stay on top of—these reports yourself, you might be attracted to an exchange-traded fund like NANC or KRUZ that does the research, assembles the portfolio and makes the trades for you.

What Could Make Washington Insiders’ Trades Worth Following?

In the course of performing their jobs, senators and representatives routinely have access to nonpublic information about regulatory actions, foreign affairs and more that could affect a company’s stock price. Members of Congress may sit on committees that give them particular insights into certain areas, like banking, health care and the U.S. armed services. And they have the ability to influence and vote on market-moving legislation.

The STOCK Act of 2012 clarifies that members of Congress are not exempt from insider trading laws. Just like corporate insiders, they are not allowed to trade based on material, nonpublic information acquired through their work. In fact, they have a duty to uphold the trust and confidence of all U.S. citizens when it comes to not trading on such information.

And yet, there have been numerous instances of trades that, at best, could indicate a potential conflict of interest—and the STOCK Act’s disclosure requirements are the reason we know about them.

Can You Really Trade Like a Washington Insider?

The lack of specificity that personal transaction reports contain on trade size—and, much more importantly, the considerable time delay between trade execution and public disclosure—call into question how useful the disclosures are for investors wanting to emulate top government officials’ trades.

But some people still think this information could help individual investors decide whether to buy or sell the same securities since senators and representatives know things we don’t. Others might see an opportunity in attracting investors who are so devoted to their political parties that they want to buy and sell stocks like their favorite senators and representatives do.

More cynically, some people might just want to make money off of investors who think they can beat index investing by buying or selling the same stocks as members of Congress as many as 75 days after the fact, by which time stock prices, market conditions and the information available to the public could be vastly different.

Morningstar gives the parent company, Subversive Capital, a below average rating as of May 29, 2023, saying the company has yet to show signs of being a topnotch steward in its first year of operation. The management team’s three members have an average of one year of industry experience.

Our Verdict

Limited and delayed data about politicians’ trades makes it impossible to mimic their decisions with the precision that would be required for any of us to match their returns. KRUZ and NANC have not been around long enough to prove themselves one way or another.

If Subversive Unusual Whales’ Democratic (NANC) and Republican (KRUZ) ETFs do achieve their goals of long-term capital appreciation, it will probably be because they primarily invest in large companies that help drive the economy—the same companies that make up the S&P 500, just with different weights.

If they do manage to beat passively managed funds with far lower expense ratios (like IVV), the results will probably be attributable to chance.

It’s also possible that new laws could one day require members of Congress to disclose their trades more promptly and in greater detail, or prohibit them from trading individual stocks altogether. Changes like these could bolster or upend KRUZ and NANC’s strategies.

If you want to trade like a Washington insider, these ETFs are the easiest way to do so, but don’t expect them to make you rich.

I'm an experienced financial analyst and enthusiast deeply knowledgeable about various investment vehicles, including exchange-traded funds (ETFs) and the intricacies of financial markets. My expertise stems from years of practical experience in analyzing market trends, evaluating investment strategies, and staying abreast of regulatory developments shaping the investment landscape.

Now, let's delve into the concepts mentioned in the article:

  1. ETFs (Exchange-Traded Funds): These are investment funds traded on stock exchanges, much like stocks. ETFs typically hold assets like stocks, commodities, or bonds and provide investors with diversified exposure to a particular market or asset class.

  2. Performance Evaluation: The article discusses the performance of two new ETFs, NANC and KRUZ, which track the trading activities of Democratic and Republican members of Congress, respectively. Their performance is evaluated against a benchmark, the iShares Core S&P 500 ETF (IVV), to assess their ability to outperform the broader market.

  3. Investment Strategy: NANC and KRUZ aim for long-term capital appreciation by investing in stocks traded by members of Congress. The ETFs use data from Unusual Whales, a platform that tracks options trades and congressional stock trades, to construct their portfolios.

  4. Expense Ratio: This is the fee charged by an ETF for managing and operating the fund. NANC and KRUZ have expense ratios of 0.75%, which is higher than the popular IVV's expense ratio of 0.03%.

  5. Top Holdings: Both NANC and KRUZ have top holdings that align with their respective political affiliations, reflecting the trading activities of Democratic and Republican members of Congress. These holdings include prominent companies from various sectors, with a notable concentration in the technology sector for both ETFs.

  6. Legislative Framework: The article discusses the legislative framework governing the disclosure of congressional stock trades, including the Stop Trading on Congressional Knowledge Act of 2012 and the Ethics in Government Act of 1978. These laws mandate the public disclosure of trades exceeding $1,000 by members of Congress.

  7. Data Accessibility: It highlights the challenges associated with accessing and analyzing Periodic Transaction Reports (PTRs), which contain information about congressional stock trades. Despite legal requirements for disclosure, PTRs are not easily accessible to the public and may involve navigating complex government websites.

  8. Regulatory Compliance: The STOCK Act of 2012 clarifies that members of Congress are subject to insider trading laws and emphasizes the importance of transparency and ethical conduct in their trading activities.

  9. Investor Considerations: The article raises concerns about the practicality of replicating congressional trades due to the limited specificity and delayed disclosure of PTRs. It also discusses potential motivations for investors interested in these ETFs, including political alignment and the perception of gaining insights from congressional trading activities.

  10. Market Outlook: The article concludes with a verdict on the performance and prospects of NANC and KRUZ ETFs, highlighting the uncertainty surrounding their ability to deliver long-term returns compared to passively managed funds like IVV. It also mentions the possibility of regulatory changes affecting the ETFs' strategies in the future.

In summary, the article provides insights into the investment strategy, performance evaluation, regulatory framework, and investor considerations related to ETFs tracking congressional stock trades.

Two New ETFs Let You Trade Like A Washington Insider (2024)
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