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Biden or Trump, These 4 ETF Zones Are Set to Gain

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Democratic presidential nominee Joe Biden is clearly leading the 2020 presidential race, according to various sources. The most-popular prediction market, predictit, reported that Joe Biden is leading Donald Trump 64 to 39. smarkets.com expects to have a Joe Biden Presidency, as they give him a 63.7% chance of securing a victory against Donald Trump’s 33.6%.

Per realclearpolitics poll, Joe Biden leads Donald Trump by 3.8 percentage points. According to FiveThirtyEight forecast data, Joe Biden is favored to win the 2020 election against Donald Trump. He is predicted to get 335 electoral college votes, while Trump is expected to receive 203 (read: Sector ETFs to Win/Lose If Biden Wins Elections).

Though Joe Biden’s lead is widening in the polls, election uncertainty has largely been weighing on investors’ sentiment. As such, investors are preparing to reposition their portfolio heading into the election, which is just less than four weeks away.

We have highlighted ETF from some zones, which are expected to move higher irrespective of the winners in the election:

Small Caps

Per the report, small caps tend to perform well after a presidential election due to renewed focus on domestic issues. Whoever wins the election needs to prioritize issues like tax and trade policies, health care reform and Big Tech oversight to get the American economy back on track. According to research by Citi strategist Scott Chronert, the average return for the Russell 2000 is 15% in the year after a presidential election since 1980. This is about 4 percentage points better, on average, than large-cap stocks (read: Beat Election Uncertainty With Top Small-Cap ETFs).

Some of the ETFs from this space like Vanguard Small-Cap Growth ETF (VBK), iShares Russell 2000 Growth ETF (IWO) and SPDR S&P 600 Small Cap Growth ETF (SLYG) look intriguing as we head into Election Day. These funds have a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy).

Value

Value investing appears compelling ahead of the election given the slowly recovering economy and the potential arrival of a coronavirus vaccine that will boost consumer spending and in turn lift value stocks. Additionally, continued antitrust scrutiny of big tech companies by the candidate who wins the election (Biden or Trump) will weigh on growth investing, thereby providing an edge to value. Further, value investing seems more tempting given its promise of dividend yield in a near-zero rate environment and uncertainty in the stock market.

Vanguard Value ETF (VTV - Free Report) , iShares Edge MSCI USA Value Factor ETF (VLUE - Free Report) , iShares S&P 500 Value ETF (IVE - Free Report) and Schwab U.S. Large-Cap Value ETF (SCHV - Free Report) have a Zacks ETF Rank #2 (read: Value Outperforms Growth in September: 6 ETFs to Bet On).

Materials & Industrials

Both Biden and Trump would likely pursue large infrastructure packages. Biden proposed a $1.3 trillion plan with goals of reducing carbon emissions, rebuilding the nation’s ailing highways and bridges and creating middle-class jobs. On the other hand, the Trump administration is preparing for up to a $1 trillion infrastructure package focused on transportation projects as part of its push to spur the world’s largest economy back to life (read: Materials Sector Gains Steam in Q3: 5 Best ETFs & Stocks).

Both plans are expected to propel the materials and industrials sectors higher. Some of the Zacks ETF Rank #2 picks from these sectors are Materials Select Sector SPDR (XLB - Free Report) , Vanguard Materials ETF (VAW - Free Report) , Industrial Select Sector SPDR (XLI - Free Report) and Vanguard Industrials ETF (VIS).

Consumer Discretionary

As both the candidates have proposals (though different) to create jobs, consumer spending will likely shoot up, resulting in gains for the consumer discretionary sector. Biden has promised to grow U.S. employment beyond pre-pandemic levels with a series of new government programs called “Build Back Better.” It includes $400 billion for manufacturing and $300 billion for research and development, and is expected to create 5 million jobs on top of those lost in the coronavirus outbreak. Meanwhile, Trump is expected to continue the "Buy American, Hire American" immigration agenda.

Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) and Vanguard Consumer Discretionary ETF (VCR - Free Report) look like solid picks. The duo has a Zacks ETF Rank #2.

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