"Look at Their Portfolios, Not Their Campaign Promises"... Where U.S. Lawmakers Invested [Weekend Money]

Democratic lawmakers focus on big tech and AI
Republicans diversify into industrials and financials
Data centers and power infrastructure are common ground for both parties

With the U.S. midterm elections set for Nov. 3, the investment portfolios of lawmakers from both parties are drawing attention. Democratic lawmakers have focused their investments on big tech and artificial intelligence (AI), while Republican lawmakers have diversified into sectors such as industrials and financials. Data center cooling and power infrastructure have also emerged as investment areas to watch, regardless of differences in the parties' policies.

Seol Taehyun, a researcher at DB Financial Investment, said this after analyzing exchange-traded funds (ETFs) that track stock trades by U.S. Democratic and Republican lawmakers. The ETF holdings used in the analysis reflected lawmakers' trade disclosures made public at the end of the third quarter this year. NANC is an ETF tracking stock trades by Democratic lawmakers, while GOP tracks those by Republican lawmakers.

IT Makes Up Half of Democratic-Tracking ETF, Focused on Big Tech and AI

Global markets have limited room to rebound, despite the U.S. Federal Reserve (Fed) holding interest rates steady, amid concerns over Alphabet's AI capital spending burden and the fallout from an antitrust investigation into Nvidia. Researcher Seol identified the U.S. midterm elections as the next turning point. Historically, after midterm elections in which the opposition party controlled both the House and Senate, the median return over the following month was the highest when the administration and Congress were at odds.

The biggest difference is the weighting of the information technology (IT) sector. IT accounts for 46.7% of NANC, which tracks Democratic lawmakers' trades, meaning nearly half of its portfolio is concentrated in IT. Communication services and health care are the next-largest sectors.

"The Democratic portfolio has an IT weighting of 46.7%, with a focus on big tech and AI software," Researcher Seol explained. The analysis suggested that if Democrats control both the House and Senate, expectations that subsidies for semiconductors and clean energy industries will remain in place could boost related investment themes.

On Kalshi, a prediction platform cited by DB Financial Investment, the probability of Democrats controlling both the House and Senate recently surpassed 60%. Researcher Seol also said that easing political uncertainty after the election could lead to a year-end relief rally.

Republican lawmakers' investments are relatively diversified. IT is also the largest sector in GOP, but its weighting is lower than in NANC, while the weightings of industrials and financials are relatively higher. The ETF also has some exposure to traditional energy.

AI Infrastructure Needed Regardless of Party: Power and Cooling in Focus

AI infrastructure is also seen as an investment opportunity. DB Financial Investment highlighted data center cooling and power infrastructure in particular, reasoning that continued investment in AI data centers could sustain demand for related infrastructure.

However, investors should be cautious about strategies that simply follow lawmakers' trades. This is because there can be a lag between when lawmakers make trades, disclose them, and ETFs incorporate the publicly available information.

"Investors should avoid indiscriminate buying in the wake of lawmakers' trades, taking into account the 45-day delay in lawmakers' disclosures," Researcher Seol said. "It is also worthwhile to keep an eye on data center cooling and power infrastructure, which are among the top sectors in the Republican ETF and bipartisan priorities."

This content was produced with the assistance of AI translation services.