By Liam Cosgrove
The average U.S. legislator beat the S&P 500 Index by a wide margin in 2022, with two House representatives earning more than 50 percent for the year, a report reveals. Members of Congress have done quite well in the stock market over a period during which most major equity indexes yielded negative returns.
A new report by the stock market-tracking website Unusual Whales—which aggregates publicly disclosed investments by U.S. officials and tracks their portfolio performance—has raised concerns about insider trading on both sides of the aisle. Congressional trades are made public by the Stop Trading on Congressional Knowledge Act of 2012, which requires that members of Congress publicly disclose investments within 45 days of the transaction.
On average, Democratic legislators were down just 1.8 percent on the year, while Republicans were up 0.4 percent. These returns may seem moderate, but the benchmark S&P 500 Index returned negative 18.2 percent over the same period.
Some members stood out among the crowd, specifically Reps. Patrick Fallon (R-Tex.) and Debbie Shultz (D-Fla.). Both earned more than 50 percent returns for the year, far outpacing, for example, legendary value investor Warren Buffet, whose firm Berkshire Hathaway has averaged 20 percent annual returns throughout its 60-year career.
Former House Speaker Nancy Pelosi (D-Calif.)—who has been in hot water in recent months over allegations of insider trading—was down 19.8 percent in 2022, underperforming the S&P 500. Pelosi opposed the concept of barring politicians from trading individual stocks, arguing that she and her colleagues should be free to participate fully in the free market economy.
The frequency by which many congressional members transacted in the market suggests that it was more than a part-time hobby for some.
Topping the charts for most trades made in 2022 was Rep. Ro Khanna (D-Calif.). The congressman made a whopping 5,777 individual trades in a single year, equating to nearly 16 trades per day and handling upward of $151 million in volume.
Khanna was not alone in the House. Rep. Michael McCaul (R-Tex.) executed 1,683 individual transactions for a total of $176 million in volume.
Members of the Senate took part as well. Sens. Bill Hagerty (R-Tenn.) and Richard Blumenthal (D-Conn.) each traded $42.1 million and $25.9 million in volume for the year, respectively.
There are notable tech companies, as well as oil and gas stocks, among the top 10 stocks favored by the House. Meanwhile, the top 10 stocks purchased in the Senate were infrastructure and technology stocks. And the top 10 sold stocks were primarily technology and food/commodity related, according to the report.
Many have raised concerns about insider trading in response to these oddly successful congressional investment returns.
“Political inside information certainly seems to help,” Ross Gerber, founder of wealth management firm Gerber Kawasaki, wrote in a tweet in a reply to the report.
Trial lawyer and legal blogger Max Kennedy called for stricter financial regulations for elected officials. “All portfolio changes of any sort should be disclosed immediately and trading on individual stocks should be illegal,” Kennedy wrote in a tweet on Wednesday.
Congress beating the market, however, is not a trend unique to 2022.
In 2021, for example, the S&P 500 returned 13.6 percent for the year—a banner year for the index. House reps on both sides of the aisle still managed to beat it, as the average member earned 14.7 percent, according to last year’s report by Unusual Whales.
The prior report caught the attention of Rep. Abigail Spanberger (D-Va.) back in March, who promoted it to draw attention to her TRUST in Congress Act. Her bill—introduced last year but never voted on—would require members of Congress to place assets into a trust upon assuming office and only allow them to liquidate once they have departed.
Several other proposals have been put forth, but none have been enacted. Nevertheless, political pressure has mounted for something to be done.
“There’s real momentum for banning members of Congress from owning and trading individual stocks,” Sen. Elizabeth Warren (D-Mass.) wrote in a tweet back in February. “It’s about time we do this.”
It’s unclear whether meaningful legislation will pass.
In a humorous irony, Unusual Whales has collaborated with Subversive Capital to launch two exchange-traded funds (ETFs) that allow retail investors to trade alongside Congress. The publicly traded “Republican Trading ETF” and “Democratic Trading ETF” track assets that “members of United States Congress and/or their spouses also have reported to have invested in through public disclosure filings,” according to Subversive’s filing with the Securities and Exchange Commission.