The “them” referred to in the headline is members of Congress, many of whom are proficient and prolific traders of individual stocks.
While some studies suggest members of Congress aren’t any better at picking stocks than the rest of us, other evaluations refute that assertion and in a click-bait, sound-bite driven world, investors and media consumers gravitate to stories about House members and Senators hitting home runs on their various stock picks. Critics, some of whom are elected officials themselves, believe federal politicians should be barred from transacting in individual equities. Others go so far as to say it amounts to insider trading.
For ordinary investors and voters, there’s not much to be done other than considering aligning yourself with politicians’ potentially winning trades – a task made easier thanks to the Unusual Whales Subversive Democratic ETF(Ticker: NANC) and Unusual Whales Subversive Republican ETF (Ticker: GOP). Subversive Capital Advisor, in partnership with Unusual Whales, introduced those funds in 2023. It’s easy to figure out to whom NANC refers.
The premise of the ETFs is easy to understand. Both hold stocks that have been bought or sold by members of the respective political parties or their spouses.
Plumbing Matters with NANC, GOP
In essence, GOP and NANC are ETFs based on the activities of well-known investors – a concept the industry had long ago tapped into with “guru” funds.
Obviously, the distinction is GOP and NANC track politicians’ trades whereas guru ETFs follow the activities of hedge funds and famous investors. The key similarity is that, in most cases, investors buying stocks based on what Warren Buffett or a politician is buying are likely to pay higher prices because the information is delayed. Form 13F filings for the prior quarter are released 45 days into the next quarter.
When it comes to politicians’ updating on their trading activities, the slop can be even slipperier. Many don’t file those disclosures in timely fashion. Other claim they forgot to do so while others claim the stocks that were purchased were bought by spouses or even ex-spouses.
Worse yet are the wide ranges of ownership on congressional disclosure forms. Say a Senator buys $20,000 worth of Apple (NASDAQ: AAPL). On their disclosure form, it will appear as $15,000 to $50,000. Conversely, if Buffet’s Berkshire Hathaway boosts its Apple stake by $1 billion, its next 13F will precisely indicate as much.
In both cases, retail investors aren’t getting fresh data, but when following politicians, the data can be rather stale. As for performance since inception, NANC has beaten GOP due in large part to Democrats holding more tech stocks than their Republican colleagues.
(Chart Courtesy: Morningstar)
NANC, GOP Interesting, But Not Risk-Free
It’s understandable that even experienced market participants are interested by what stocks politicians are buying and selling. After all, there’s no denying that politicians have access to information that has yet to make it to the public square. However, as noted with the data release situation mentioned above, there are some risks associated with politically-driven ETFs.
“Portfolio changes in these ETFs are not driven by market forces or a rules-based investment process, but rather the unknowable motives of 535 people in Washington,” notes Morningstar’s Zachary Evens. “These motives could be economic or not, or lawful or not.”
Another issue to consider as it relates to following the lead of politicians is that some of their investing acumen may be more attributable to knowing when to sell than knowing when to buy. That thesis is confirmed by the goings on in early 2020 when many members of Congress sold stocks in advance of the U.S. economy shutting down due to the coronavirus pandemic. An unfair advantage to be sure and one that doesn’t mean those sellers were good stock pickers. They were simply able to leverage their positions to sell stocks before a bear market arrived.
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