The S&P 500 had a spectacular 25% return last year, but that’s nothing compared to some members of Congress. Nancy Pelosi, a Democrat, famously traded millions of dollars’ worth of NVIDIA (NVDA) before voting on a U.S. semiconductor bill advanced by the Biden administration. Meanwhile, Kevin Hern, a Republican, bought weapons manufacturers shortly before the Israel-Gaza-Palestine conflict began.
In this article, we’ll look at whether you can beat the market by trading alongside Congress and explore a couple of newly-launched exchange-traded funds (ETFs) attempting to do just that.
Does Congress Outperform?
Members of Congress have made headlines for trading stocks shortly before significant catalysts (we mentioned just two examples above). Since politicians often have advanced information about world events, it follows that they may have an information advantage over other market participants. Unfortunately, this information advantage may not be as robust as it seems.
According to UnusualWhales, just one-third of Congress members actively trading stocks beat the market in 2023. While Brian Higgins reported a massive 239% gain for the year, Warren Davidson and Austin Scott clocked massive losses of 77% and 57%, respectively. Many of the largest gains also came from an unsurprising set of stocks, like NVIDIA (NVDA), Meta (META), and AMD (AMD).
That said, some members of Congress consistently perform better than others. For instance, Autopilot reckons that Nancy Pelosi’s portfolio has had an average annual return of more than 30%, which greatly exceeds the S&P 500’s average annual returns even in good years. And the former Speaker of the House isn’t alone in producing outsized returns on a consistent basis.
Can You Mimic Their Trades?
Congress members are legally required to disclose their trading activity. As a result, you could purchase stocks they purchased and sell stocks they sold after a slight delay of a few days to a few weeks. In many ways, this is similar to how you can track major investors due to SEC reporting requirements and mimic their moves on a quarterly or annual basis.
Of course, the profitability of these trades depends heavily on timing. If a politician purchases a stock days before a bill passes helping that stock, the stock may have already risen substantially before the disclosure hits the market. And, if you purchase the stock too late, you could end up buying at a much higher price or even losing money if the stock moves lower.
A handful of new actively managed ETFs also provide some great insights:
- Unusual Whales Subversive Democratic ETF (NANC) – The NANC ETF is up 31.54% over the past 52 weeks compared to just 24.96% for the S&P 500. The fund invests in equities bought or sold by Democratic members of Congress and their spouses. Currently, the largest holdings include NVIDIA (13.48%), Microsoft (9.93%), and Alphabet (Google) (4.95%). As a result, its contents and returns mirror those of many tech-focused ETFs.
- Unusual Whales Subversive Republican ETF (KRUZ) – The KRUZ ETF has been less impressive with an 18.14% gain over the past 52 weeks. While the fund invests in equities bought or sold by Republic members of Congress and their spouses, it’s more diversified with the largest holdings being JPMorgan (4.89%) and NVIDIA (2.92%). And the lack of tech exposure has hurt returns over the past year.
Of course, it’s clear that NVIDIA is the driving force behind NANC’s outperformance. But, like many highly concentrated portfolios, it can be a blessing or a curse. A significant drop in NVIDIA stock could hurt the NANC portfolio much more than the KRUZ portfolio and potentially send returns below the S&P 500 (although the S&P 500 also has a high exposure to NVIDIA).
It’s also worth noting that both funds are actively managed since the data comes via the STOCK Act and may involve some subjective trading decisions. As a result, they have 0.76% to 0.83% expense ratios that’s higher than many passively-managed funds but on par with its actively-managed peers.
Politically-Themed ETFs
NANC and KRUZ are just two politically-themed ETFs drawing in investors from both sides of the aisle. While they focus on mimicking Congressional trades, other funds focus on investing in specific companies appealing to different political ideologies or excluding stocks based on certain values.
The following ETFs adhere to a range of political strategies. They are sorted by their YTD total return, which ranges from 5% to 20%. They have AUM between $10M and $95M and expenses running between 0.45% and 0.99%. They are currently yielding between 0% and 3%.
| Name | Ticker | Type | Actively Managed? | AUM | YTD Total Ret (%) | Yield | Expense |
|---|---|---|---|---|---|---|---|
| Unusual Whales Subversive Democratic Trading ETF | NANC | ETF | Yes | $94.5M | 19.5% | 0.3% | 0.76% |
| God Bless America ETF | YALL | ETF | Yes | $67.7M | 17.8% | 3% | 0.65% |
| Democratic Large Cap Core ETF | DEMZ | ETF | No | $32.3M | 17.7% | 0.8% | 0.45% |
| Unusual Whales Subversive Republican Trading ETF | KRUZ | ETF | Yes | $10.1M | 8.3% | 0% | 0.83% |
| Tema American Reshoring ETF | RSHO | ETF | Yes | $12.6M | 6.8% | 0% | 0.99% |
| Point Bridge America First ETF | MAGA | ETF | No | $21.4M | 5.8% | 1.5% | 0.72% |
The Bottom Line
Congress members tend to outperform the S&P 500 index, but there’s a wide dispersion of returns, so you may have the best results following specific members. At the same time, these portfolios contain different weights based on expertise and ideology (e.g., tech versus energy). And this can cause some to outperform depending more on the broader macroeconomic climate than individual stock picking.
Two new actively managed ETFs make it easy to invest alongside Congressional Democrats or Republicans, and Democrats have been outperforming over the past year. But, before committing any capital, it’s worth considering the risks and expenses.
