## Decoding the Stock Market: Congressional Trading ETFs and the Upcoming Election
As the 2024 US presidential election draws near, the political and economic landscape is poised for a significant shift. While the presidential race dominates headlines, the upcoming congressional elections hold substantial weight, too. The intricate relationship between Congress and the President means that congressional leadership can significantly influence the president’s ability to enact their agenda. This makes understanding congressional sentiment, particularly their investment strategies, crucial for discerning potential market movements.
This is where Unusual Whales’ Subversive Democratic ETF (NANC) and Subversive Republican ETF (KRUZ) come into play. These innovative ETFs are based on the concept of the “wisdom of crowds,” which postulates that the collective knowledge of a large group can outperform individual experts. In this case, the “crowd” consists of US congressional members and their spouses, who, under the Stop Trading on Congressional Knowledge Act (STOCK Act), are required to disclose any trades exceeding $1,000 within 45 days.
These disclosures, publicly available through the Senate Office of Public Records or the Clerk of the House of Representatives, provide a glimpse into the investment strategies of individuals privy to potentially valuable inside information. While bipartisan support for restricting congressional trading grows, enacting such legislation is still a long way off. However, the current 45-day disclosure delay under the STOCK Act hasn’t noticeably affected NANC and KRUZ’s performance, which continues to offer valuable insights into the long-term investment strategies of congressional members.
## A Glimpse into Congressional Investment Strategies
The construction of NANC and KRUZ reflects the relative dollar amounts disclosed by congressional members and their spouses, with larger trades carrying greater weight in the portfolio. When a trade is reported, the fund managers use the midpoint of the disclosed range to select the holdings. Both ETFs have achieved double-digit returns year-to-date, with KRUZ reaching 14.33% and NANC registering a 25.24% return as of October 25, 2024. This performance has mirrored the S&P 500 Total Return Index (23.14%) and Nasdaq Composite Total Return Index (24.06%).
Despite similar numbers of holdings (NANC: 168 vs. KRUZ: 169), the composition of the two ETFs reveals a stark difference in the investment philosophies of the Democratic and Republican groups. NANC exhibits significant exposure to the technology sector (42.48%), followed by consumer cyclical (12.08%), communication services (11.19%), and healthcare (11.05%). On the other hand, KRUZ’s sector exposures are more diversified. While technology remains the largest sector (25.54%), financial services (14.92%), industrials (13.81%), and energy (10.35%) round out the top sectors. Interestingly, the only shared holdings between both funds are Nvidia NVDA (NANC: 12.74% vs. KRUZ: 3.46%) and Microsoft MSFT (NANC: 7.97% vs. KRUZ: 1.26%), both of which are among NANC’s top 10 holdings and Nvidia being in KRUZ’s top 10. This shared interest in Nvidia and Microsoft, both leaders in artificial intelligence (AI) development, highlights the undeniable influence of these companies, irrespective of political affiliations.
## Investing in a Changing Political Landscape
The upcoming election will inevitably bring new economic policies. Both presidential candidates have articulated their visions for the US economy, but ultimately, Congress holds the power to either enact or block these proposals. Understanding the investment activity of congressional members provides a unique perspective on the collective intelligence of the most informed group regarding future US policy legislation and its potential impact on the broader economy.
For investors with a macroeconomic focus seeking to capitalize on the informational advantage gained from congressional trading patterns, NANC and KRUZ offer turnkey solutions that meet these criteria. By providing a unique window into the minds of those shaping the future of the US political and economic landscape, these ETFs offer a compelling opportunity to navigate the uncertainties of the upcoming election cycle.
