A jab at greedy politicians, a fun way to level the stock trading playing field — or a mix of both?
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Two new politically-themed investment funds that mimic the stock trades made by members of Congress are letting Americans invest like their favorite politicians — while also shaming the country’s top lawmakers for dragging their feet around insider trading.
The Democratic and Republican exchange-traded funds (ETFs) were launched by investment firm Subversive Capital Advisor and the data hub Unusual Whales with the tickers NANC and KRUZ — playing on the names of prominent politicians on either side of the house, Nancy Pelosi (Dem) and Ted Cruz (Rep).
They’re a twist in the tale for certain lawmakers who have been trying to introduce legislation that will ban members of Congress and their families from trading individual stocks.
If you can’t beat them, join them
Public scrutiny of Congressional stock trading has intensified in recent years, with politicians being accused of using their connections and insider information to score winning deals.
“A quick online search shows how members of Congress perform relative to the rest of the market,” said Christian Cooper, Subversive Capital’s portfolio manager for the NANC and KRUZ funds.
As a whole, Congress outperformed the market and beat the SPY index in both 2021 and 2022 — with politicians from both sides favoring sectors like technology and finance.
“We believe members of Congress have more information than the rest of us, and if they can trade on that information, we should be able to do the same, and now we can,” said Cooper.
Unusual Whales is the data provider for the NANC and KRUZ ETFs, using publicly accessible stock disclosures of members of both parties and their spouses to help the Subversive team buy or sell securities for each portfolio.
But there’s a catch. There is a time lag between when members of Congress make their trades and when Unusual Whales can see and report the data.
Under the STOCK Act, or Stop Trading on Congressional Knowledge Act — passed in 2012 in response to concerns about insider trading by members of Congress — lawmakers are required to disclose any trades valued at more than $1,000 within 45 days of the transaction.
“Let’s think about what Congress is actually doing, versus what they’re required to do,” said Cooper on Bloomberg ETF IQ. “In the STOCK Act, they have this 45-day period … before Unusual Whales began commenting on this publicly, the actual average reporting time was about 60 days.
“As Unusual Whales began shining light on this, that is now down to an average of about 29 days — but that’s still far too long.”
Unusual Whales and Subversive are focused on getting Congressional stock data “as cleanly and quickly as possible,” according to Cooper.
He believes Congress may one day “pass a compromise bill that both shortens the time they have to report … and also increases the fines,” but he doesn’t think they’ll ever pass an absolute ban on trading.
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‘Reform needs to be made now’
In 2022, 131 members of Congress (24% of elected officials) actively traded up to $788 million in various assets through over 12,700 transactions, according to the Unusual Whales 2022 Congressional Stock Trading Report.
“There were many unusual trades, whether coinciding with Committee decisions or large bills themselves, resulting in large gains for politicians,” the group added.
But not all politicians support ethically gray trading.
On Jan. 12, Reps. Abigail Spanberger of Virginia and Chip Roy of Texas, joined by a bipartisan alliance of 35 co-sponsors, reintroduced the Transparent Representation Upholding Service and Trust in Congress Act, or TRUST, for the third time.
“We saw tremendous momentum, we saw growing support in our districts, and we saw growing recognition across the political spectrum that such a reform needs to be made now,” Spanberger said in a statement.
“Our TRUST in Congress Act would demonstrate that lawmakers are focused on serving the interests of the American people — not their own stock portfolios.”
In the same month, Sen. Josh Hawley of Missouri introduced the Preventing Elected Leaders from Owning Securities and Investments (PELOSI) Act — trolling Pelosi after news broke that her venture capitalist husband sold 30,000 shares of Google stock just one month before the tech giant was sued over alleged antitrust violations.
“While Wall Street and Big Tech work hand-in-hand with elected officials to enrich each other, hard-working Americans pay the price,” Hawley said in his PELOSI Act announcement. “The solution is clear: we must immediately and permanently ban all members of Congress from trading stocks.”
If passed, both TRUST and PELOSI would require members of Congress, their spouses and children to either sell their holdings when they take their position in Congress or put them into a blind trust, where they would have no control over the trades.
They would still, however, be able to purchase diversified ETFs, diversified mutual funds, and U.S. Treasury bills, notes or bonds.
While the movement is gaining momentum, no bills banning Congressional stock trading have yet been passed — but Cooper hopes that continued pressure from Unusual Whales and the heightened transparency brought about by the NANC and KRUZ ETFs will help to “change behaviors.”