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Beat the market - track your senator's portfolio
By Deborah Brewster in New York
Published: February 25 2004 4:00 | Last Updated: February 25 2004 4:00
http://search.ft.com/search/article.html?id=040224007191

American politicians should be trusted - at least when it comes to picking promising shares. A study of US Senators' personal stock portfolios has found that they outperformed the market by an average of 12 per cent a year in the five years to 1998.

"The results clearly support the notion that members of the Senate trade with a substantial informational advantage over ordinary investors," said Alan Ziobrowski of the Robinson College of Business at Georgia State University, who wrote the report. His findings were based on 6,000 financial disclosure filings and are due to be published in the Journal of Financial and Quantitative Analysis. "The results suggest senators knew when to buy their common stocks and when to sell."

First-time senators did especially well, with their stocks outperforming by 20 per cent a year on average, which very few professional fund managers would be able to achieve.

There was no difference in performance between Democrats and Republicans.

A separate study in 2000, covering 66,465 US households from 1991 to 1996 showed that the average household's portfolio underperformed the market by 1.44 per cent a year.

Corporate insiders (defined as senior executives) usually outperform by about 5 per cent.

The study notes that politicians' timing of transactions is uncanny. Most stocks bought by senators showed little movement before the purchase, but after purchase they outperformed the market by 28.6 per cent on average the following calendar year.

Returns on sell transactions are equally intriguing. Stocks sold by senators performed in line with the market the year following the sale. When adjusted by the size of stocks, total portfolio returns outperformed by 12 per cent a year on average.