Fund manager takes distrust of Congress to new level

When Congress goes back into session on Wednesday, portfolio manager Eric Singer will be checking out.
Mr. Singer, manager of The Congressional Effect Fund (CEFFX), goes to cash or to a fully hedged position whenever Congress is in session, and then jumps back into the market when Congress adjourns.
It sounds like an oddball strategy designed to appeal to the anti-government fringe.
But Mr. Singer says it works.
“Buyers tend to back away from [an] industry if they think the rules will change” due to legislation, he said. “Only when there’s finality do buyers reappear.”
He cites a 1997 study, “The Congressional Calendar and Stock Market Performance.”
“Almost the entire advance in the market since 1897 corresponds to the periods when Congress is in recess,” the authors wrote.
From 2000 through last year, the congressional effect strategy produced a 5.82% annualized return with a standard deviation of 11.48%, Mr. Singer said. By contrast, the S&P 500 total return index produced just 0.4% annualized with a 20.44% standard deviation.
Of course, the naturally defensive posture of the fund was helped by the market crash.
The fund might underperform in a strong bull market, Mr. Singer concedes, but he adds that the strategy has worked during strong years for stocks as well.
In 2009, the fund lost 4.41%, according to Morningstar Inc., well off the 24.13% returned by Morningstar’s Moderate Allocation category and the 26.46% total return by the S&P 500.
Last year, the fund gained 15.2% versus 11.8% for the Morningstar Moderate Allocation category and 15.06% for the S&P 500 total return index.
So far, the fund, with just $10 million in assets, is something of a novelty.
But Mr. Singer has been attending adviser events to get the word out.
He says the fund is a “volatility damper” that can be a part of allocations to cash and index funds.
The Republican takeover of the House might help his fund because GOP leadership has been promising a shorter session, Mr. Singer said.
That would be bullish, assuming fewer new regulatory actions would result, he said.
But the congressional effect is a non-partisan phenomenon, Mr. Singer said. It “applies to all political configurations” of Congress.