Those who say the U.S. should place a higher priority on teaching financial literacy need look no further than our own lawmakers for supporting evidence. In June, Congress released the personal financial disclosures of its members, detailing their investment holdings, sources of income and debts for 2011.
Although it’s impossible to get a complete picture of legislators’ portfolios or their rates of return from recent financial disclosures, combing through the documents show that lawmakers tend to suffer from the same slip-ups and biases as many of the rest of us.
Below, we profile a few of the investing personality types you’ll find on both sides of the aisle. (You can look at U.S. representatives’ disclosures for 2011 at the Office of the Clerk's Web site. The U.S. Senate doesn’t make its members’ forms available online, but they are accessible via LegiStorm’s free database.) Unless otherwise noted, lawmakers either declined to comment for this story or did not respond to emails seeking comment.
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The Inadequately Diversified and Overly Cluttered Portfolios
News of the benefits of diversification, it seems, hasn’t yet reached many on Capitol Hill. Joe Barton, a Republican representative from Texas, reported just four stock investments and one rental property as the entirety of his assets. Democratic Sen. Maria Cantwell of Washington, declared holdings of as much as $1.1 million in a former employer, RealNetworks, creator of RealPlayer, making the position several times greater than her next-largest holding. And Sen. Bill Nelson, a Florida Democrat, appears to be sitting almost entirely in cash and money market accounts. He and his wife listed only money market and checking accounts in the section of the form dealing with publicly traded assets. Rep. Chris Gibson, a New York Republican, listed just one bank account as the sum of his assets.
Then there are the stock hoarders and fund collectors. The most recent disclosures by Sen. Jeff Bingaman, a New Mexico Democrat, total 104 pages, including several detailing his wife’s options trades. On July 20 and 21 of 2011, in the throes of the debt-ceiling crisis, Anne Bingaman bought put options worth several thousand dollars on a basket of stocks in an account with OptionsHouse. (A put option can be used as insurance against falling prices.)
Rep. Tim Murphy, a Republican from Pennsylvania, listed about 60 different mutual fund holdings. Republican Sen. Thad Cochran of Mississippi reported about 140 individual securities positions. A spokesman says Sen. Cochran’s stock-market investments are handled by outside managers. House Majority Leader Eric Cantor, a Virginia Republican, reported more than 130 holdings in mutual funds, individual stocks, options and other securities, including stakes in an exchange-traded fund that invests in the stocks of agribusiness companies and one that invests only in timber real estate investment trusts.
The Bears and Gold Bugs
It’s no surprise that Ron Paul, the representative from Texas who ran for this year’s Republican presidential nomination on the platform of abolishing the Federal Reserve, holds shares in more than a dozen gold- and silver-mining companies. But gold fever has spread across the political spectrum: 31 members of Congress reported holding shares in SPDR Gold Shares (symbol GLD) during 2010, according to the Center for Responsive Politics, which keeps a database of members’ investments. The group has not yet compiled data on aggregate investments disclosed for 2011. But GLD, an exchange-traded product that tracks the price of gold, did turn up in the portfolios of Rep. Rodney Frelinghuysen, a Republican from New Jersey, and New Mexico’s Bingaman, according to the most-recent disclosures.
Rep. Daniel Lipinski, a Democrat from Illinois, reported selling Leuthold Weeden Capital Management’s Grizzly Short Fund (GRZZX) during the year. The fund sells short individual stocks, meaning it should profit when share prices decline. Over the past year it lost 6.1%, while Standard & Poor’s 500-stock index gained 5.2% (all returns in this story are through July 16). According to the disclosure, Lipinski took a loss selling ProShares UltraShort 20+ Year Treasury ETF (TBT), a leveraged ETF that is designed to appreciate when Treasury bond prices fall and yields rise (according to Lipinski’s filing, the holdings belonged to his spouse). The ETF plunged 55.2% over the past year. Rep. Lynn Jenkins, a Republican from Kansas, sold shares in ProShares UltraShort S&P 500 (SDS) and ProShares UltraShort MSCI Emerging Markets (EEV). “These particular investments were made by my investment adviser and based solely upon his recommendation,” Jenkins says. The ETFs bet, respectively, on drops in U.S. and emerging-markets stocks. Over the past year, the UltraShort S&P 500 fund sank 23.8%, and the emerging-markets fund lost 0.4%.
The Sin-Stock Buyers and Do-Good Investors
In general, members of Congress seem to shy away from holding stocks of cigarette makers, alcohol producers and other industries that could raise eyebrows. In 2010, for example, the five biggest holdings for members from both chambers of Congress consisted of such uncontroversial U.S. companies as General Electric (GE), Procter & Gamble (PG), Cisco Systems (CSCO) and Microsoft (MSFT). Fifth place was a tie between Pfizer (PFE) and Bank of America (BAC), according to the Center for Responsive Politics.
But some legislators hold stocks that would not pass muster with socially screened investors. In his most recent disclosure, Rep. Jim Sensenbrenner, a Republican from Wisconsin, reported a stake of more than $100,000 in Altria Group (MO) and more than $500,000 in Philip Morris International (PM), the cigarette makers (according to the disclosure, the positions were held by his spouse).
Democrats, too, hold stakes in what some call sin stocks. Rep. Shelly Berkley, who is running for a Senate seat this year, has in the past held shares of Rick’s Cabaret International (RICK), which runs a chain of strip clubs in Texas, the Midwest and New York (she held the position through a Morgan Stanley account for which her broker made the investment decisions, according to the disclosures). The position was liquidated in 2010. And Rep. Adam Schiff, of California, reported a position of as much as $15,000 in Constellation Brands (STZ), the maker of Svedka vodka and Black Velvet whisky.
Among would-be do-gooders, Rep. Barney Frank, a Democrat from Massachusetts who is retiring after this session, reported that his largest holding at the end of last year was Calvert Equity Portfolio (CSIEX). The fund invests in companies that meet certain environmental, social and governance criteria. Over the past year it lost 3.9%, putting it in the bottom 20% of funds that invest mostly in large, fast-growing companies.
Rep. Earl Blumenauer, a Democrat from Oregon, owns several socially screened funds, including Portfolio 21 (PORTX), which says it invests in companies that produce environmentally friendly products and use renewable energy. The fund lost 9.5% over the past year, placing it in the bottom third of stock funds that invest in companies based anywhere in the world. Rep. Bruce Braley, a Democrat from Iowa, this year reported holdings of as much as $15,000 in Amana Income Fund (AMANX), which invests according to Islamic principles. Its avoidance of financial stocks -- due to prohibitions on investing in companies that earn money from lending -- has helped to drive the fund’s excellent long-term results. Over the past decade, it returned 10.3% annualized, beating the S&P 500 by an average of 4.0 percentage points per year and outpacing 99% of funds that invest in large companies with a blend of growth and value attributes. Over the past year, however, Amana lost 2.0%, trailing more than 75% of large blend funds.
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