The political divisions in Washington stem from the returns lawmakers are making on their controversial stock trading bets.
Perhaps the best measure of this trading — which many lawmakers and outside groups say should be banned entirely — are two regularly rebalanced exchange-traded funds that allow traders to mimic lawmakers' holdings by party.
The two ETFs are managed by Subversive Capital, with NANC following Democrats and KRUZ following Republicans.
Since the funds launched in early February this year, Democratic investments have outperformed the market, rising nearly 20%, while Republicans lagged but still returned just over 9%.
The returns, in other words, split almost exactly the difference between the 14.55% offered by the S&P 500 over the same period, according to data from Yahoo Finance.
“We are now in a divided world,” said Christian Cooper, portfolio manager at Subversive Capital, which manages the two funds.
In Congress, trading is allowed as long as it is disclosed. This is “a unique natural experiment” to see how the political divide plays out in financial markets, Cooper said.
Similar partisan-based divergent returns are also seen in two other ETFs tracking politics and stocks.
The Point Bridge America First ETF (MAGA), which focuses on companies whose employees strongly support Republican candidates, also underperformed a mirror image Democratic Large Cap Core ETF (DEMZ) during the year.
Looking ahead to 2024: Will it swing to the GOP?
The mixed results in 2023 among lawmakers were largely due to outsized Democratic investments in high-profile tech stocks, particularly those related to AI.
Democratic lawmakers' top five stock holdings are currently Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), Salesforce (CRM) and Alphabet (GOOG).
A prominent Democrat also made headlines in recent days with the news that the Pelosi family is investing again in Nvidia (NVDA) after staying away from it in recent months following recent revelations.
The story goes on
Speaker Emeritus Nancy Pelosi's husband, Paul, a venture capitalist, made the deals and, as both Pelosis have repeatedly said, is uninformed about everything that has emerged on Capitol Hill.
Speaker Emeritus Nancy Pelosi and her husband Paul arrive at the White House for a state dinner honoring Indian Prime Minister Narendra Modi on June 22, 2023. (STEFANI REYNOLDS/AFP via Getty Images) (STEFANI REYNOLDS via Getty Images)
The biggest GOP holdings look very different. Republican investors are currently focused on ConocoPhillips (COP), NGL Energy Partners LP (NGL), Shell (SHEL), Accenture plc (ACN), and Elevance Health (ELV).
While Republican lawmakers and the investors who followed them may have missed out in 2023, Cooper sees a possible shift toward those holdings in 2024.
He said factors ranging from energy volatility to a potentially slower-than-expected frequency of interest rate cuts by the Federal Reserve to a widening conflict in the Middle East could shift the focus from things like AI to what he called the more pragmatic focus seen in many GOP portfolios, particularly energy stocks.
“All these things point to KRUZ being favored in 2024,” he added.
If this potential actually materializes, it would be similar to the shift between 2022 and 2023. In 2022, GOP holdings would have outperformed the overall market had these ETFs existed, largely due to a jump in the energy sector by nearly 60%.
Lawmakers as a whole have beaten the S&P 500 in both 2021 and 2022, according to reports from Unusual Whales, which provides the data to Subversive Capital.
The DEMZ and MAGA funds, which focus on the political orientation of companies, have both been around for a long time. A comparison of these funds since 2020, when DEMZ began trading, shows that longer-term returns have favored Republicans in this regard, even after the recent strong year for progressives.
Lawmakers' efforts to ban the trade
This year, ongoing efforts to ban stock trading through the legislature failed again.
A bipartisan effort in the House now has 69 co-sponsors, while another effort just resumed earlier this month. The latter bill aims to ban not only lawmakers, but also the president and vice president, Supreme Court justices and senior Federal Reserve Board officials from owning nearly all individual stocks.
“The American people need to know that their elected leaders are putting the interests of their constituents — not their own financial interests — first,” said Sen. Kirsten Gillibrand (D-N.Y.), who is pushing the broader bill.
The effort aims to update current rules that have been in place since they were signed by then-President Obama. This 2012 law clarified that insider trading laws apply to lawmakers and also introduced a requirement that lawmakers disclose their dealings within 45 days.
These trading disclosures – along with annual financial reports – enable the NANC and KRUZ ETFs to exist by providing near real-time insight into legislators' portfolios.
But efforts to ban the practice appear to have an uphill climb to get onto Washington's agenda in 2024, even after another series of revelations, including lawmakers from both parties selling bank stocks during the financial turmoil in March.
Ben Werschkul is a Washington correspondent for Yahoo Finance.
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