Investors seeking high-performing exchange-traded funds (ETFs) have observed a notable trend: many top-performing funds include Nvidia (NASDAQ:NVDA) (NASDAQ:NVDA) as a key holding. One such ETF, the Unusual Whales Subversive Republican Trading ETF (NYSEARCA:KRUZ), has surpassed the S&P 500 by over 50% since its launch two years ago. This fund, which follows stock transactions made by Republican politicians, raises questions about the influence of congressional trading activity on market performance. The connection between political trades and stock market gains has fueled debates over potential insider advantages.
Past reports have highlighted concerns about lawmakers’ stock trading activities, leading to the passage of the Stop Trading on Congressional Knowledge (STOCK) Act. Despite this legislation, congressional members continue to make trades that often significantly outperform the market. Similar ETFs have emerged, including the Unusual Whales Subversive Democratic Trading ETF (NYSEARCA:NANC), which tracks trades made by Democratic politicians and has delivered even higher returns than KRUZ. These developments have intensified scrutiny over whether policymakers benefit from non-public information.
What drives the KRUZ ETF’s success?
The KRUZ ETF closely follows stock purchases and sales disclosed by Republican lawmakers under the STOCK Act. Nvidia is among the fund’s top holdings, though it represents less than 2.8% of total assets. The ETF’s strategy suggests that tracking congressional stock picks may lead to above-average returns, given their historical success in the market. While politicians deny using privileged information, the consistency of their investment gains has led to skepticism.
“Politicians may be trading on insider knowledge, though they deny it, which could raise ethical questions and political risk.”
How do politicians’ investments compare?
Nancy Pelosi, the former House Speaker, has often been cited as an exceptionally successful investor, reportedly outperforming Warren Buffett by a wide margin over the past decade. The NANC ETF, which tracks Democratic politicians’ trades, has generated a 60% return since its inception. In 2023, Republican Representative David Rouser led political investors with a 149% return, according to Unusual Whales data. These figures further fuel concerns that political figures may have access to market-moving insights.
Despite growing criticism, congressional members have pushed back against restrictions on their trading activities. Rep. Dan Crenshaw, for example, has argued against such restrictions, citing stagnant congressional salaries. Lawmakers earn significantly more than the national average, yet many continue to engage in stock trading while holding influential positions.
The STOCK Act requires members of Congress to report their trades, but enforcement remains weak. Lawmakers have up to 45 days to disclose transactions, and penalties for late filings are minimal. This delay in reporting makes it challenging for investors to mirror congressional trades in real-time. However, ETFs like KRUZ attempt to capitalize on the patterns observed in these disclosures.
The holdings of the KRUZ ETF include companies such as JPMorgan Chase, Comfort Systems USA, AT&T, and iShares Bitcoin Trust ETF, in addition to Nvidia. These investments reflect stocks frequently traded by Republican politicians. The ETF’s approach aims to identify securities that may benefit from policy decisions or legislative actions.
Political stock trading remains a controversial topic, and the continued success of ETFs tracking lawmakers’ trades highlights ongoing concerns about market fairness. While some advocate for stricter regulations to prevent conflicts of interest, others see these ETFs as a way for everyday investors to follow potentially advantageous trades. Given the current regulatory environment, the debate over congressional trading is likely to persist.
