NANC vs. KRUZ: Comparing ETFs That Track Congressional Stock Trades

In the world of exchange-traded funds (ETFs), there are a few unique and niche products that capture the attention of investors seeking a different approach. Two of these ETFs, NANC (Unusual Whales Subversive Democratic Trading ETF) and KRUZ (Unusual Whales Subversive Republican Trading ETF), stand out because they track the stock trades of U.S. congressional members and their spouses. These ETFs aim to capitalize on the trading patterns of lawmakers, operating on the premise that the financial decisions of politicians could reveal valuable insights into potential market movements. In this article, we will explore these two ETFs, comparing their strategies, performance, and potential investment considerations.

1. What Are NANC and KRUZ?

The NANC and KRUZ ETFs were both launched in 2023 and aim to mirror the stock transactions made by members of the U.S. Congress. These investments are inspired by the Stop Trading on Congressional Knowledge (STOCK) Act of 2012, which requires U.S. lawmakers and their spouses to publicly disclose their stock trades within 45 days of execution. This disclosure creates an opportunity for investors to track these trades and potentially capitalize on the financial moves of the individuals who may have access to exclusive political and economic information.

• NANC focuses on trades executed by Democratic members of Congress, tracking their buying and selling patterns.
• KRUZ mirrors the trades of Republican congressional members.

Both ETFs are designed to reflect the investment preferences of their respective political affiliations, with different industry concentrations and investment strategies.

2. Investment Strategies and Holdings

Both NANC and KRUZ use unique strategies based on the stock trades of their targeted lawmakers. The investment allocations of these funds are influenced by the personal trading preferences of political figures, so their compositions often reflect larger sectoral trends linked to those in power.

NANC (Democratic Trading ETF):

• NANC is weighted heavily toward the technology sector, which has been a favored area of investment for many Democratic lawmakers.
• As of October 2024, NANC holds approximately $180 million in assets.
• Top holdings in the ETF include tech giants such as Nvidia, Microsoft, and Amazon.
• The fund’s significant allocation to high-growth tech stocks can be attributed to the Democratic Party’s policies promoting innovation, green technology, and infrastructure.
• NANC also has some exposure to healthcare and clean energy stocks, sectors that align with the Democratic agenda.

KRUZ (Republican Trading ETF):

• KRUZ takes a more diversified approach, with significant exposure to sectors like financial services, energy, and industrials.
• Managing around $35 million in assets as of October 2024, KRUZ has holdings in companies like JPMorgan Chase, Comfort Systems USA, and, interestingly, Nvidia.
• The fund’s focus on financial and energy stocks reflects the Republican Party’s traditional emphasis on deregulation, tax cuts, and free-market capitalism.
• It has a more value-oriented approach, which contrasts with the growth-oriented focus of NANC.
• KRUZ’s allocation suggests a more conservative view on economic growth, positioning itself with stable, dividend-paying stocks that provide long-term capital preservation.

3. Performance Comparison: NANC vs. KRUZ

Performance is often a key deciding factor for investors when selecting an ETF. Since their inception in early 2023, NANC and KRUZ have shown differing performance trends based on the sectors they emphasize and the broader market conditions.

NANC Performance:

• Between February 2023 and June 2024, NANC delivered a return of 45%, largely driven by the strong performance of technology stocks.
• The ETF’s high concentration in the tech sector allowed it to significantly outperform broader market indices during this period.
• With tech stocks like Nvidia soaring due to advances in artificial intelligence and cloud computing, NANC benefitted from the sector’s growth.

KRUZ Performance:

• On the other hand, KRUZ posted a return of just 20% during the same period, underperforming NANC.
• While KRUZ’s diversified holdings in energy and industrials had some strong performers, the overall return was lower compared to NANC’s tech-heavy portfolio.
• The Republican sectoral focus on energy and financials, particularly during times of volatility in oil prices and financial markets, led to more modest gains.

4. Expense Ratios: Cost Considerations

As specialized ETFs, NANC and KRUZ have higher expense ratios compared to traditional index funds. This is because these funds require specific strategies to track and analyze the stock trades of U.S. lawmakers, adding layers of complexity to their management.

• NANC has an expense ratio of 0.75%.
• KRUZ has a slightly higher expense ratio of 0.83%.

These fees may seem small, but over time, they can erode returns, particularly for long-term investors. While these expense ratios are not out of line with other thematic ETFs, they are higher than those typically seen with broad-market index funds, which can charge as little as 0.05% or 0.10%.

5. Considerations for Investors

While investing in NANC or KRUZ offers unique exposure to the trading habits of U.S. lawmakers, there are several factors that potential investors should carefully consider before committing capital:

1. Speculative Nature of the ETFs:

   • Both NANC and KRUZ are highly dependent on the trading actions of U.S. congressional members. While lawmakers may have access to valuable information, their trades do not always translate into market-beating performance. Political decisions can be influenced by a variety of factors, making it difficult to predict whether these stocks will continue to outperform in the long run.

2. Potential Legislative Risks:

   • There has been ongoing debate in Congress regarding whether lawmakers should be allowed to actively trade stocks, given concerns about conflicts of interest. Future legislation restricting or prohibiting these trades could impact the viability of NANC and KRUZ, making their long-term prospects uncertain. Any move to limit Congressional stock trading could lead to the closure or restructuring of these funds.

3. Higher Costs and Management Fees:

   • As mentioned earlier, both ETFs carry higher expense ratios compared to traditional index funds. This means that for investors seeking low-cost, broad-market exposure, these ETFs might not be the best choice. However, for those interested in the political and thematic investing approach, the higher cost might be justified.

4. Political Bias and Sector Exposure:

   • NANC and KRUZ are designed to reflect the political leanings of the lawmakers they track. As such, the funds might be more attractive to investors who align with certain political ideologies. However, investors should also consider that the political environment is volatile, and the performance of these funds could be influenced by shifts in political power, regulatory changes, and fiscal policies.

6. Conclusion: Should You Invest in NANC or KRUZ?

NANC and KRUZ offer an innovative investment strategy, providing exposure to the personal stock trades of Democratic and Republican lawmakers. These ETFs cater to those who believe that political insights can be a powerful indicator for market performance. However, as with all investments, there are risks involved, particularly related to the speculative nature of the stocks chosen by lawmakers and the potential for future legislative changes.

For investors interested in a unique, politically-themed investment strategy, both NANC and KRUZ present intriguing opportunities, albeit with higher costs and a degree of uncertainty. Ultimately, investors should carefully weigh these considerations against their broader portfolio goals and risk tolerance before diving in.

Disclaimer: As with any investment, it is essential to conduct thorough research or consult a financial advisor to understand the full implications of investing in politically-focused ETFs like NANC and KRUZ.