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By Kyle Anthony, Benzinga

Elections represent a key inflection point for market sentiment, influencing the political and economic landscape. With less than 30 days until the U.S. presidential election, Vice President Kamala Harris and Former President Donald Trump are making a concerted push to amplify their respective platforms to the American public. While the U.S. presidential election is dominating headlines, congressional elections will also occur in November.

Given the nature of the interaction between both branches of the U.S. government, congressional leadership can have a material impact on the president’s ability to achieve their agenda; as such, observing the behaviors and actions of congressional members can provide some level of insight into pending decisions that may have real-world ramifications.

Gleaning investment insight from U.S. congressional members and their spouses is the basis of Subversive Capital’s Unusual Whales Subversive Democratic ETF (BATS: NANC) and Unusual Whales Subversive Republican ETF (BATS: KRUZ).

Investing In The Wisdom Of Crowds

NANC and KRUZ reflect the “wisdom of crowds” theory, which suggests that large crowds are collectively wiser than individual experts. By investing in accordance with the trading activity of congressional members, the ETFs potentially benefit from the informational insight these individuals may be privy to.

Investments by members of Congress and their spouses must be disclosed under the Stop Trading on Congressional Knowledge Act (STOCK Act), which requires members of Congress and their spouses to disclose any trades for transactions over $1,000 within 45 days. STOCK Act filings are filed with either the Senate Office of Public Records or the Clerk of the House of Representatives and made available online according to the Ethics in Government Act (EIGA).

While bipartisan support has been growing for restricting congressional trading, enacting such a bill is still far off. It’s also important to note that the current STOCK Act 45-day disclosure delay hasn't materially impacted the performance of NANC and KRUZ, as they continue to provide valuable insight into congressional members' long-term investment strategies. As long as the legislative framework remains unchanged, these ETFs offer a unique advantage in capturing these trends.

Looking Below The Surface On Both ETFs

In constructing the ETFs, holdings were based on the relative dollar amounts disclosed by Congress members and their spouses. In essence, larger dollar amounts equate to more "weight" in the portfolio. When a trade is disclosed, the manager selects the midpoint of the reported range.

Both ETFs thus far in the year have seen double-digit returns. Year-to-date, as of October 25, 2024, KRUZ has returned 14.33% (NAV Total Return), while NANC’s return of 25.24% (NAV Total Return) has been comparable to that of the S&P 500 Total Return Index (23.14%) and Nasdaq Composite Total Return Index (24.06%). The S&P 500 Total Return Index reflects the 500 largest companies that are in the United States, whereas the Nasdaq Composite Total Return Index is composed of stocks listed on the Nasdaq stock Exchange, which is heavily weighted towards companies in the information technology sector.

The performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For the most recent Standardized Performance and month-end performance, click the following links: KRUZ and NANC.

While both funds have a similar number of holdings (NANC: 168 vs. KRUZ: 169), their respective compositions are significantly different, highlighting the difference in the worldview of each political group. NANC’s predominant exposure is the technology sector (42.48%), with consumer cyclical (12.08%), communication services (11.19%) and healthcare (11.05%) being the other significant sector exposures. Conversely, KRUZ’s sector exposures are relatively more distributed. While the technology sector (25.54%) is still the largest, financial services (14.92%), industrials (13.81%) and energy (10.35%) round out the other significant sector exposures.

Ironically, the only shared holdings held by both funds are Nvidia (NASDAQ: NVDA) (NANC: 12.74% vs. KRUZ: 3.46%) and Microsoft (NASDAQ: MSFT) (NANC: 7.97% vs. KRUZ: 1.26%), with both being among NANC’s top 10 holdings and Nvidia being in KRUZ’s top 10. This is noteworthy, as both companies are seminal leaders in artificial intelligence (AI) development and advancement. As such, despite each group's differing political ideologies, these companies' strong performance is irrefutable, regardless of where one stands on the political aisle.

Investing In A Changing Political Landscape

Both presidential candidates have outlined their respective views on the U.S. economy and their plans should they enter the Oval Office. Congress has a significant role in bringing to fruition or blocking any policy actions advocated by the executive branch; as such, the investing activity of these individuals provides some insight into the collective intelligence of the most informed group regarding future U.S. policy legislation and its impact on the broader economy.

For investors who maintain a macroeconomic focus and want to benefit from the informational advantage gleaned from knowing the investing activity of congressional individuals, NANC and KRUZ are turnkey solutions that meet these characteristics.

Featured photo by Tim Mossholder on Unsplash.

Benzinga is a leading financial media and data provider, known for delivering accurate, timely, and actionable financial information to empower investors and traders.

This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.

Investing involves risk including possible loss of principal. It is possible that legislation or regulation could be enacted that limits, restricts or prevents United States Congresspeople and/or their spouses from personal securities trading. Legal, tax and regulatory changes could occur that may adversely affect the Fund and its ability to pursue its investment strategies and/or increase the costs of implementing such strategies. Government regulation may change the manner in which the Fund is able to implement it’s principal investment strategy. Government regulation may change frequently and may have significant adverse consequences for the Fund or its investments. It is not possible to predict fully the effects of current or future regulation.

A high portfolio turnover rate has the potential to result in the realization and distribution to shareholders of higher capital gains, which may subject you to a higher tax liability. High portfolio turnover also necessarily results in greater transaction costs which may reduce Fund performance.

Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus and summary prospectus available on the respective product pages of each fund:KRUZ and NANC . Please read the prospectus and summary prospectus carefully before you invest.

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