US lawmakers show Wall Street how it's done

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The Independent Online

Wall Street stars who make millions by beating the stock market had better beware. A new group has emerged whose returns are sky-high, yet their salaries are a small portion of compensation paid to investment bankers.

They are America's senators who, when they are not doing their day job running the country, are rather talented at investing.

Senators beat the stock market annually by 12 per cent on average, the first comprehensive study of share trading by members of America's upper house has found.

That is an impressive performance, as fund managers are thought to have the Midas touch if they regularly outperform by about 3 per cent, and even hedge funds - which charge steep fees for performance - are now on average only 6 per cent better than the market.

The academics who conducted the study looked at 6,000 stock transactions made by senators between 1993 and 1998. They noted that the senators did an especially good job of picking up stocks at just the right time - their buys were typically flat before they bought them, but beat the market by 30 per cent, on average, in the year after.

However, it seems that the senators might have been given a helping hand. Alan Ziobrowski, a professor at Georgia State university, and his colleagues concluded that at least some senators must have been trading "based on information that is unavailable to the public".

The group said the fact that many senators come into contact with senior business people, and are obviously on the inside loop when it comes to commercially sensitive legislation, is a distinct advantage.

Mr Ziobrowski's study was completed last year, but it has gained new resonance this year, after the Senate's Republican leader, Bill Frist, got into hot water after it emerged that he had sold shares in Hospital Corporation of America, the giant company founded by his father and brother.

Just two weeks after the shares were sold, HCA announced its earnings would not meet Wall Street expectations, and the company's stock price tumbled almost 9 per cent.

Mr Frist, who is from Tennessee, happened to exit at about the top of HCA's share price. He is now the target of an investigation by the Securities and Exchange Commission, although he insists that he did nothing wrong, and that he sold the shares - which were held in a blind trust - to defuse concerns about potential conflicts of interest.