For years, people following the stock trades of members of Congress have walked away with the feeling that lawmakers have made hefty profits by getting the inside skinny on when to buy and sell stocks.

In total, 37 members of Congress beat the S&P 500 in 2023, according to stock and options data company Unusual Whales.

But can ordinary investors copy this kind of success?

Enter Christian H. Cooper, portfolio manager at Subversive Capital who in February 2023 worked with Unusual Whales to launch the Unusual Whales Subversive Democrat Trading ETF (NANC) and the Unusual Whales Subversive Republican Trading ETF (KRUZ), which each track the stock trades made by members of Congress.

Each of the funds' ticker symbols refer to California Rep. Nancy Pelosi and Texas Sen. Ted Cruz, two members of Congress who have made notable stock market profits.

Both funds are actively managed, diversified ETFs that invest based on the public disclosure filings made by sitting members of Congress and their families. NANC holds more than 700 securities and KRUZ holds more than 400. NANC favors future-looking stocks and is heavily overweight in technology stocks, while KRUZ is overweight in sectors such as energy, financials and industrials.

The return for NANC year-to-date is 22.59%, which beats the 17.66% return of the S&P 500. The ETF has returned 48.18% since its inception. KRUZ’s YTD return is 9.68%, which lags the S&P 500 but beats the 4.09% performance of its benchmark, the Dow Jones industrial index. The Repuplican-modeled ETF has returned of 20.61% since inception.

Since they were created, the ETFs have grown assets from zero to $150 million, Cooper said.

What motivated Cooper to start the ETFs? “I must attribute the idea 100% to Unusual Whales. They really popularized the notion that Congress can generally outperform the market,” said Cooper, who has traded equities and options at Credit Suisse, Jefferies and RBC.

Last year, for instance, Pelosi, the California Democratic who formerly served as speaker of the House, got a 65.5% return on her stock investments, easily outpeforming the S&P 500 return of 26.1%, according to Unusual Whales.

Outdoing her was Democratic Rep. Brian Higgins of New York, who raked in an eye-popping 238.9% return on his actual portfolio in 2023 before resigning from his seat in February.

The top Republican on the Unusual Whales list in 2023 was Rep. Mark Green, a Republican from New York who racked up an impressive 122% return.

Cooper translates the physical trade disclosures from Unusual Whales into an actual portfolio in order to seek optimized returns. “Just because a member of Congress buys 1,000 shares of XYZ stock does not mean that I buy 1,000 shares. In order to capture any information edge, I have to make that decision in the context of the total portfolio of Congress, and Unusual Whales data is indispensable to that process,” he said.

Just as in the political arena, Democrats and Republicans have divergent views when it comes to investing, he said.

“Both NANC and KRUZ are almost diametrically opposed to each other from a risk perspective," he said. "Republicans trade more like the Dow and Democrats trade like the S&P. If you evaluate with that lens, NANC is beating the S&P on a risk-adjusted basis and KRUZ is as well when compared to the Dow, but KRUZ is lagging the S&P. Only recently have Republicans been trading [Nvidia] more, so now that has moved to a top holding in KRUZ as well."

While NANC has benefitted from Nvidia's more than 200% returns, KRUZ had more exposure to energy and utilities stocks, which have performed well, although not as well as technology, he said.

Have the funds caught the attention of financial advisors yet?
 
“Advisors are interested and I am talking to a lot of them, but this is a new idea and an idea that challenges market norms. For the moment, there does seem to be some information advantage here if you evaluate based on risk-adjusted statistics alone, but I suspect advisors will be a bit more comfortable as we approach the 3-year mark with that same level of performance,” Cooper said.