New ETFs follow trades made by Nancy Pelosi and other politicians

Politicians like former House Speaker Nancy Pelosi have raised eyebrows with their remarkably successful stock trading.

However, an investigation by CNBC suggests that following their lead may not be the best investing strategy.

ETFs follow trades made by Democrats and Republicans

CNBC reported last week that the investment firm Subversive Capital and data company Unusual Whales have created exchange-traded funds (ETFs) designed to mirror the preferences of Washington figures.

According to its website, Unusual Whales is “excited to be working on bringing new financial products so that retail can invest alongside Congress and reduce information asymmetries.”

The Unusual Whales Subversive Democratic Trading ETF (NANC) follows trades by Democrats while the Unusual Whales Subversive Republican Trading ETF (KRUZ) is based on decisions made by Republicans.

Still, some experts say that investors should be careful before jumping on the new products. One of them is Todd Rosenbluth, who works at the investment research firm VettaFI.

Both ETFs may be costlier than investors would like

“A 65-year-old member of Congress is probably buying a stock for very different reasons than people reading this article are,” Rosenbluth told CNBC.

“You don’t want to ride the coattails of other supposedly smarter investors instead of buying a strategy fit for you individually,” he added.

What’s more, Rosenbluth argued that the 0.75% expense ratio may be too steep for many, stating, “There are far cheaper ways to get that exposure than paying 75 basis points.”

“If you’re a long-term investor, the sort of investment that fits your strategy is likely a broad-market ETF with a low expense ratio,” Rosenbluth continued.

Josh Hawley introduces bill to ban congressional stock trading

“People need to go beyond a cool ticker. With any new ETF, dig in to understand what the rules are to determine if it’s a thesis worth participating in,” he concluded.

Kenneth Lamont serves as senior manager research analyst for passive strategies at Morningstar, and he sounded a cautious note as well, saying, “Being skeptical is really your first line of defense here. This is a buyer-beware situation.”

Subversive Capital and Unusual Whales will face problems if Missouri Republican Senator Josh Hawley gets his way, as Fox News reported last month that he introduced a bill to ban members of Congress from engaging in stock trading.