Congressional Effect Fund
For a number of years this was the website for the Congressional Effect Fund, a mutual fund run by Eric Singer.The Congressional Effect Fund (CEFFX) was a no-load fund with a low minimum initial investment, a higher than average annual fee, and surprisingly good performance. The Congressional Effect Management was based upon the premise of the Congressional Effect, which basically says: “The stock market preforms better when congress is not in session!”
SO the Congressional Effect Fund ( CEFFX invested in the S&P 500 on days when Congress is out of session and switched to domestic securities when it resumed.
Content is from the site's 2008 -2013 archived pages as well as other outside sources from 2011 - 2014.
Until now, government’s mostly deleterious effect on investment holdings has been largely ignored by investment advisors, to the peril of their clients. Data suggests that government’s impact goes much deeper than mere interest rate manipulation and Fed jawboning – items that garner the lion’s share of media attention.
We believe the effects of Congressional action and deliberation have a significant and predictably negative impact on investment performance. We believe that Congressional "cures" are almost always worse than the disease, and that Congressmen have little understanding or appreciation for the unintended adverse consequences of their legislation.
The failures of Fannie Mae and Freddie Mac, along with subsequent efforts to bail out the institutions that depended on a sound market for mortgages, are one example of such damage. While Congress has been quick to blame deregulation and Wall Street greed, there is little acknowledgement of the role they themselves played in expanding these institutions, changing their missions, soliciting campaign contributions from them, and protecting them from meaningful oversight when they were found cooking their books and perpetuating fraud on investors. Fannie Mae and Freddie Mac, unfortunately, are only two of many examples of Congress' power to damage markets. For more examples, look at this website, where from time to time we will add examples of Congressional harm. We believe Congressional impact will worsen until Americans unite to successfully demand smaller, less intrusive government, and lose tolerance for government’s perpetual assault on industry.
Unfortunately this doesn’t seem to be the current trend.
Post Mortem: The non-traditional concepts presented on this site and followed by the funds managed by Eric Singer drew a lot of both positive interest and derision in the financial press. Searches in Google for these funds revealed content that both praised and ridiculed the notion of benefitting financially from timing based on whether Congress was in session. Fortunately for the funds, none of the bad reviews showing up on page one of Google's search results had much impact because the investors were not likely to invest based on those search results. While it has been obvious for some time that negative content within Google's search results could have serious consequences for the businesses involved, there is no evidence that these opinions influenced the success or failure of the funds involved. Unlike mass market products, investment vehicles were not typically chosen via Google searches, although harmful search results may have contributed to outflows at some point. But the ideas posted here are valuable as examples of intelligent conjecture and the arguments made here are certainly worthy of consideration.
There are several ways for an investor to have broad market exposure that is professionally managed to mitigate the historically deleterious ‘Congressional Effect’ on investment holdings:
1)The Congressional Effect Fund. (Minimum Investment - $1,000 Symbol CEFFX)
The Congressional Effect Fund is a no-load mutual fund launched on May 23, 2008 to provide investors with an easy way to invest in a strategy that seeks to capture historically higher returns (typically seen on days that Congress not in session) via exposure to the broad market as measured by the S & P 500 index on days that Congress is not in session. On days that Congress is in session, the Fund sits aside, investing in interest bearing instruments including, without limitation, treasury bills, other government obligations and bonds, collateralized repurchase contracts, money market instruments, and money market funds. A Fund Fact Sheet, prospectus, account forms and additional information are available on the Congressional Effect Fund website. Investors seeking to open accounts under $10,000 can do so instantly via an online application offered through the Fund distributor, Matrix Capital Group.
2) Private Money Management (Minimum Investment - $500,000)
Private Money Management is available to institutions, endowments, trusts and high net worth individuals and families through Congressional Effect Management. With Private Money Management, assets are managed in an individual investment portfolio, rather than comingled as in a mutual fund. Your money manager would meet with you to discuss your investment objectives and taylor an investment strategy that is right for you, while always seeking to mitigate the historically deleterious ‘Congressional Effect’. The benefits of opening a privately managed account include, but are not limited to, personalized professional supervision and active individualized management. Congressional Effect Management is an SEC-Registered Investment Adviser.
Eric Singer, Manager of the Congressional Effect Management, first published an article on the general effect of Congress on daily stock prices in an article published in Barron’s in 1992, posted here. Since then, the idea has attracted support and evidence from both the financial and academic community.
Mr. Singer has been a finance professional for over 25 years. Most recently his practice focused on raising funds for, and investing in, small cap public companies. During the 1990’s, he was head of Corporate Finance at Gerard Klauer Mattison & Co., a research oriented brokerage firm. In the 1980’s, he launched a corporate finance new products group at Smith Barney, and headed a similar group at PaineWebber. He also practiced law for several years and developed real estate.
He was graduated from SUNY at Stony Brook, where he was Phi Beta Kappa, and Cornell Law School, where he was a member of Law Review.
How much investment wealth does Congress destroy?
“That government is best that governs least.” It was true when Tom Paine first said it during the American Revolution in 1776, and it is still true today.
Congressional Effect Management, advisor to the Fund, believes it is especially accurate with respect to how much Congress hurts investment performance. As government has gotten bigger at an accelerating rate, the Fund manager believes the biggest risk to investors in today's market is political risk--the risk that the rules will change. In the 1990’s, Eric Singer set out to study this issue, and was surprised at the actual magnitude of Congressional wealth destruction revealed in stock market returns.
Specifically, since 1965, 44 years of empirical data demonstrates that over long periods of time the stock market performs dramatically better on days when Congress is out of session as compared to days when Congress is in session. Study the chart to the left to see the historical difference in stock market returns on Congressional In Session vs. Congressional Vacation days.
The Congressional Effect Fund was launched in May 2008 as the first mutual fund to specifically seek to reward investors by avoiding, and help the country by exposing, the stock market harm caused by unintended consequences of Congressional action and deliberation.
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.]
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.
Investment return and principal value will fluctuate with changing market conditions so that when redeemed, shares may be worth more or less than the original cost. Please consider the investment objectives, risk, charge and expenses of the investment company carefully before investing. For a prospectus containing this and other important information, click hereor call the Fund at 888.553.4233 or write to the Fund c/o Matrix Capital Group, Inc. 630 Fitzwatertown Road, Willow Grove, PA 19090. Please read the prospectus carefully before investing or sending money.
Investors should note the following risks associated with "Congressional Effect" investing: The ability to meet it investment objectives is directly related to investment of assets - whether in managed account form or Fund form. Principal investment strategy and investment methodology is based on the Congressional Effect, but this investment strategy and methodology has not been widely applied in practice. Use of an investment strategy based on the Congressional Effect may be ineffective because the Congressional Effect may not produce expected results, either for short or long-term periods. Moreover, the Advisor cannot give any guarantee that the Congressional Effect observed during past periods will continue to be observed in the future. Therefore, there is no guarantee that the desired results with be produced. An investor may lose money.
While the Advisor periodically (at least daily) inquires as to whether each house of Congress is in session, the Advisor may not be able to make an accurate determination as to whether or not Congress is in session or intends to be in session at all times due to difficulties in obtaining legislative schedules, and unexpected or unannounced changes in such schedules. Because the investment strategy depends in large part on accurately determining when Congress is in session, inaccurate information about whether or not Congress is in session could negatively impact investment performance.
Because the Advisor generally only expects to achieve capital appreciation during periods when Congress is out of session, Congressional Effect investing may be susceptible to market timers who attempt to invest immediately before Congress is in recess, and divest immediately before Congress convenes. Such market timing could present risks for investors with long-term interests in the strategy, which may include, among other things, interference with efficient portfolio management, increased brokerage and administrative costs, forcing the Advisor to hold excess levels of cash to meet redemption requests, and an increase in costs. Although the Advisor has adopted certain policies and procedures intended to identify and to discourage frequent trading, including a redemption fee, it cannot ensure that all such activity can be identified or terminated.
Finally, the Advisor will buy and sell portfolio securities in response to whether Congress is in session or out of session, without regard to the length of time they have been held. The Advisor anticipates a generally substantial movement all of its portfolio from “in session” investments (Cash and Cash Equivalents) to “out of session” investments (S&P 500 futures contracts) and vice versa each time Congress changes its session status. Since Congress’s in session status can change daily, the portfolio may change rapidly (e.g., within a single trading day) a number of times during the year. Since portfolio turnover involves paying brokerage commissions and other transaction costs, portfolio changes cause additional expenses.
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