Efficient Alpha's  Instablog

By Joseph Hogue, Efficient Alpha

Having left my ideological days behind, I consider myself a political agnostic. If you still have faith that the talking heads in Washington will do the right thing, then I suggest you take a look at Standard & Poor’s reasoning for lowering the credit rating of the United States from AAA. It has long been a dream of mine to somehow invest based on my cynicism of the government, and now I can do just that thanks to Eric Singer and the team at the Congressional Effect Family of Funds.

 

The Congressional Effect Fund (CEFFX) moves assets to cash while congress is in session and then into S&P500-mimicking futures and funds when congress is out. The rationale behind the fund, and yes there is an element of rationale, is that political uncertainty reduces stock returns and is highest while politicians are deciding what to do with your money. After rules and regulations have been passed, companies are free to maximize shareholder wealth without undue political ambiguity.

 

The fund was established in 2008, but has yet to find an audience. It is currently up just 3.4% from its May ’08 starting price of $9.40 and reached its peak of $10.41 in May of this year. Since Congress is only in session about 150 days per year, the fund is held in cash for the majority of the time.

 

While holding the fund would make hilarious dinner party conversation, which alone may be worth shelling out ten bucks, it may be no more than a fad play on public sentiment. I am not wild about the fund’s assets only earning a cash return for the majority of the year. I would much rather it invest in something with a low market correlation like the iShares Barclays Intermediate Government/Credit Bond ETF (GVI) or the Advisorshares Active Bear ETF (HDGE). Both funds have outperformed the CEFFX and the broader market over the since 2008. The CEFFX has actually outperformed the S&P500 since its inception by 4% on an annualized basis, but the period was not a full business cycle and certainly not typical.