Congressional Effetc Fund CEFFX
November 03, 2010 - 2:42pm EST by
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2010 2011
Price: 10.78 EPS $0.00 $0.00
Shares Out. (in M): 1 P/E 0.0x 0.0x
Market Cap (in $M): 9 P/FCF 0.0x 0.0x
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 9 TEV/EBIT 0.0x 0.0x

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Description

This is an unconventional way to look at value, as it veers from the typical focus on quantitative analysis, but it is value nonetheless.  It is very simple, though somewhat difficult to execute, and thus only requires a very short writeup:

The Congressional Effect Fund, CEFFX, is a no load fund that only invests in the broad stock market when Congress is OUT of session.  The fund is thus designed to profit from political risk by managing the news cycle to minimize the impact of potential legislation on stock prices. When Congress is in session, the fund is either in cash, T-Bills or has offsetting long and short S&P 500 positions. YTD it is up 14.28%, putting it in the top 1% of the 1233 funds in Morningstar's Moderately Allocated category and the bottom 1% of its category in risk. Since May 2008, pre LEH troubles, the fund has made money.

Eric Singer is the fund manager, and was recently asked on TV about the data supporting his views of investing only when Congress is out of session.  The academic data goes back to 1897, representing over 30,000 trading days. Ignoring transaction costs, a dollar invested only on IN session days over the last 112 years would have compounded into less than two dollars. The same dollar, invested just on OUT of session days would have compounded into over $ 300.  If you like, you can see his recent appearance on Neil Cavuto on FOX Business here : http://video.foxbusiness.com/v/4371181/markets-better-when-congress-is-out-of-session/   Mr. Singer also writes an aptly named blog, The Congressional Wealth Destruction Monitor.

CEFFX is a value play if you think of purchasing equity exposure at a price of low risk.  Its one year equity returns have been achieved with low volatility of 9.21 % (as compared to 17.84% for the S&P 500) and a Beta of .24 (as compared to 1.00 for the S&P 500). Even with this low volatility, CEFFX has still beat the S&P 500 by over 700 basis points annually since inception.  The Fund has historically done extremely well in its short life in terrible markets:  it was down 2.19% in 2008, and during that period the S&P 500 was down 34.20%.  The Congressional Effect approach doesn't always work.  For example, in the roaring market of 2009, the fund was down 4.41% while the broad market was up 26.45%. Nevertheless, on a long term basis it is a good way to get equity exposure while dampening volatility.

Even on a short term basis, this investing approach may prove timely in the upcoming lame duck Congressional session. The chance for a very active lame duck session is highly likely, with some predictions this will be the mother of all lame duck sessions, with many bad headlines for stocks and wealth creation.


Catalyst

lame duck Congressional session
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