You Can Now Follow US Lawmakers Insider Trades With These ETFs!

Investors who feel that members of the US Congress lawmakers have access to information that could give them a trading advantage can now trade two exchange-traded funds that track the stock transactions of members.

Unusual Whales, an option flow platform and data supplier, and Subversive Capital Advisor, an asset manager, launched the Unusual Whales Subversive Democratic ETF (NANC) and Unusual Whales Subversive Republican ETF (KRUZ) on Tuesday.

The two ETFs, whose tickers are puns on the names of two US leaders on opposing sides of the political aisle — Nancy Pelosi, the former Democratic House Speaker, and Ted Cruz, the Republican senator — will also invest based on political affiliation.

One for Democrats, and One for Republicans

According to a filing with the Securities and Exchange Commission, NANC would only focus on shares purchased or sold by Democratic members of Congress and their spouses, and KRUZ will focus on Republican members and their spouses. The management cost for both ETFs is 0.75 percent.

We feel members of Congress have more information than the rest of us, and if they can trade on that information, we should be allowed to, and now we can,” said Christian Cooper, portfolio manager for the ETFs.

Cooper stated that possible insider congressional investments frequently outpaced the market. They outperformed the S&P 500 by 1.2 percentage points in 2021, but their average returns were 17.5 percentage points greater than the market the previous year.

Time Delay in Reporting

Todd Rosenbluth, VettaFi’s head of research, said that there may be a large time lag between any financial transaction and the necessity to report it.

The Stop Trading on Congressional Knowledge (Stock) Act requires required reporting of any trade worth more than $1,000, however, it allows 45 days to complete this reporting.

However, Unusual Whales stated that back-testing revealed that the typical delay between the transaction date and the filing date was shrinking and was currently averaging between 10 and 20 days.

The issue of Congressional lawmakers trading has remained contentious. Congressman Chris Pappas presented a bill last month that would virtually prohibit members of Congress and their spouses from trading individual equities.

In the face of mounting evidence that far too many members of Congress continue to violate the Stock Act, it is evident that we must take extra measures to prevent insider trading and conflicts of interest among legislators,” Pappas stated at the time.

Skeptical the Law will Pass

Cooper, on the other hand, did not believe the law against insider trading would pass.

I think the US Congress is so dysfunctional they won’t outlaw it [stock trading]. They are more inclined to reduce disclosure times and raise fines,” he said.

Cooper said each ETF had roughly 400 holdings, but they offered significantly varied exposures, reflecting each lawmakers party’s “world perspective“. He described NANC as “tech-heavy,” whereas KRUZ was focused on energy and gaming.

Other glaring faults in the ETFs’ theory, according to Rosenbluth. “Riding on the backs of people with varied financial goals and time horizons is a significant danger,” he warned. “People should own what best suits their wants and ambitions, not those of others.

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