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Congressional Whales ETF Filed

2 mins read

The majority of Americans believe that politicians have an “unfair” advantage in the stock market and that they should be banned by law from trading stocks. Even though they didn’t get what they wanted with the latter, we’ll be able to ride on the former, if two proposed exchange traded funds are approved by the US regulator.

New York-based Subversive Capital Advisors has filed with the Securities and Exchange Commission to establish the Unusual Whales Subversive Democratic Trading ETF (NANC) and a Republican equivalent (KRUZ).

KRUZ may refer to Republican Senator Ted Cruz, and NANC to Democratic House Speaker Nancy Pelosi. Her husband Paul was found to have invested millions of dollars in call options in December, according to congressional documents. These companies include Alphabet, Roblox, Salesforce, and Disney.

The discoveries surrounding Paul Pelosi’s trading fueled cross-party efforts to impose restriction on trading of stocks by members of Congress. They came after lawmakers, including Republican senator Richard Burr, were accused of inappropriately trading on confidential information regarding the coronavirus epidemic and former Republican congressman Chris Collins was convicted and sent to jail for engaging in an insider trading fraud, before being pardoned by then-president Donald Trump.

A January poll found that 76% of Americans think that members of Congress and their spouses have a “unfair” advantage in the financial markets, while only 5% think they should be allowed to trade. Even so, there hasn’t been any legislation to stop trade yet.

Within 45 days, members of Congress must report any securities transactions exceeding $1,000 they or their spouses have made.

Subversive Capital plans to use this information to figure out which stocks should be in each ETF and how much they should be worth. According to the filing, this would result in a portfolio of 500-600 securities under “normal circumstances.” The annual management charge would be one percent.

The goal was to try to profit from so-called smart money’s trading ideas. If there is an investing case for doing this associated with members of Congress, it is because they have information that the general public does not, and you can therefore tap into their potential expertise to get ahead of the market. As such, they were the “antithesis of meme ETFs,” which argue that collective action and crowd intelligence may help ordinary people overcome the elite.

Furthermore, stock trading by members of Congress may still be forbidden until NANC and KRUZ get SEC approval.

According to Nate Geraci, proprietor of The ETF Store, the 45-day grace period for members of Congress to report stock transactions means that the proposed ETFs would be operating with very obsolete data. That might be problematic if the investing premise is that lawmakers use inside information to make profitable bets.

Subversive Capital currently only has one ETF, the Subversive Metaverse ETF (PUNK), which launched in January. The $933,000 actively managed fund invests in metaverse-related companies, with the exception of Meta Platforms, Facebook’s parent company, in which it is short because it thinks that any market cap beyond zero is a clear assault on liberal democracy and the sustainability of our world.

It declined to comment on the proposed follow-up ETFs since sponsors are not allowed to advertise products awaiting regulatory approval.

Rosenbluth believed NANC and KRUZ would attract investors, but for the wrong reasons.  There is a pushback against legislative authority, which may help these things stand out in an increasingly crowded market, but politics and money, should be kept apart.”

The issue of congressional trading is now generating a lot of controversy and attention, which will surely help enhance awareness of these ETFs.

The retail trading camp, in particular, is keen to emphasize specific congressional transactions and fan the flames with insider trading allegations.

Despite the spectacular headlines surrounding Nancy Pelosi’s stock trading ability, it is indeed dubious if members of Congress as a collective can achieve any significant outperformance, which is ultimately what the success of these ETFs will come down to.

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