Historical research indicates that, more often than not, when Congress is in session there is a negative effect on equities markets (the “Congressional Effect”) due possibly to investor fear and uncertainty surrounding government action -- or possible action – as well as unintended adverse consequences on the stock market of Congressional legislative initiatives. For instance…

I. On October 24, 2007, the House of Representatives held hearings on legislative proposals to reform mortgage practices in an attempt to help consumers cope with rising numbers of mortgage defaults. On that one day, the Investors Business Daily (“IBD”) Group 196 Index, which includes Mortgage and Related Services Companies, fell from 577.64 to 559.17, suffered a decline of 3.2% across an entire industry.

II. On Saturday, December 1, 2007, the House reached a compromise on a bill that would impose higher fuel mileage requirements on car manufacturers. The following Monday, IBD Group 105 Index, which includes car companies,  fell by 9.67 to 642.22, a decline of 1.5%.

The Advisor believes that the cumulative effects of many similar market responses prevent the market from performing as well on days when Congress is in session than when Congress is recessed.  Of course this effect is best observed over a long period of time and therefore this investment is best suited for long-term investors. [Past performance does not guarantee future results. An investment in the Fund should not be considered a complete investment program.]

Approach
The Congressional Effect Fund is the first mutual fund to explicitly seek to minimize investor exposure to potentially negative impact of new and proposed Congressional legislation on the broad stock market.

The Congressional Effect Fund seeks to capture the historically higher returns on Congressional out of session days by primarily having exposure to price moves of the broad market as measured by the S & P 500 index on vacation days. The Fund does not try to capture the dividends of stocks in the index. Instead, it invests in interest bearing instruments including, without limitation, treasury bills, other government obligations and bonds, collateralized repurchase contracts, money market instruments and money market funds.

Common Sense Caveats
While 43 years of data is significant, no investment strategy works all of the time. Although it has not happened often over the past 43 years, there could be years where the market responds much more positively on days when Congress is in session as compared to days when they are out of session. For example, in 1997, Congress enacted  significant tax cuts, including a cut in capital gains taxes generally. In that year, the annualized average price increase on the days when Congress was in session was 59.5% (an average daily gain of 0.18% or 18 basis points) as compared to an annualized average price loss of -4.6% (an average daily loss of -0.02% or 2 basis points) when Congress was out of session. 

Click here for a discussion about specific risks associated with investing in the Congressional Effect Fund.