Back to top

Welcome Trump Era with These ETFs

Read MoreHide Full Article

Though stocks have had a rough journey so far in 2017, markets welcomed the 45th U.S. republican president Donald Trump with aplomb. The Dow Jones Industrial Average – one of the strongest beneficiaries of the Trump rally – broke a five-day losing streak and added about 0.5% on January 20. The S&P 500 and the Nasdaq Composite too tacked on more or less 0.3% each.

This was a positive hint. After all, if we look at history since 1928, the S&P declined about 1.05%on average on inauguration days. Let’s take a look at some key pledgesmade by Trump for his first day as president and their impact on the ETF world:

Halt on Hiring for the Federal GovernmentBarring Military, Public Safety and Health

Donald Trump is in favor of beefing up public spending by hundreds of billions of dollars on infrastructure. In fact, he has proposed $1 trillion infrastructure spending financed by new tax credits to goad private equity investors. Increased outlays will be aimed at improving roads, bridges and telecommunications.

He also promised lower corporate taxes and ease in regulations. Since these measures are expected to balloon federal deficit, Trump also sought to put an embargo on Federal Government employment to keep a check on payrolls.

All in all, beneficiary ETFs will be the likes of private equity ETF PowerShares Global Listed Private Equity ETF (PSP - Free Report) , transportation ETF iShares Transportation Average (IYT - Free Report) , telecom ETF Vanguard Telecommunication Services ETF (VOX - Free Report) and industrial ETF Industrial Select Sector SPDR ETF (XLI - Free Report) (read: 5 Top-Ranked Sector ETFs Thankful to Trump).

"Buy American and Hire American"

Since small caps generate most of their revenues from the domestic market, they are more closely tied to the U.S. economy and its increased hiring. These have lower foreign exposure and are thus less impacted by global growth slowdown. This will make small-cap ETFs like iShares Russell 2000 (IWM) winners (read: Why Small Cap ETFs are Betting Big on Trump?).

Also, with Trump highly expected to bring U.S. manufacturing jobs back to the country and strictly oppose outsourcing, First Trust RBA American Industrial Renaissance ETF (AIRR - Free Report) which focuses on small- and mid-cap U.S. industrial and community banking companies – is expected to benefit.

Renegotiate the NAFTA

Trump has indicated that he wants to renegotiate the North American Free Trade Agreement or totally remove it. The agreement had tied up the U.S., Canada and Mexico for more than two decades. The deal permitted manufacturers and farmers to do seamless business (read: Foreign ETFs to Win or Lose on Trump Victory).

Now, this agreement may be threatened as Trump intends to bring jobs offshored to countries like Mexico back to America. This particular issue does not go well with country ETFs like iShares MSCI Mexico Capped ((EWW - Free Report) ) and iShares MSCI Canada ETF ((EWC - Free Report) ) .

Formally Terminate the Trans-Pacific Partnership

The Obama administration has been negotiating the Trans-Pacific Partnership or pan-Pacific trade agreement among 12 countries’ along the Pacific Rim. Countries like Japan and Australia are part of this. But Trump finds this deal not in the best interest of America.

So member ETFs like iShares MSCI Australia (EWA, iShares MSCI New Zealand Capped ENZL and iShares MSCI Singapore ETF (EWS - Free Report) may get hurt. In fact, most of America’s Asian friends like iShares MSCI South Korea Capped (EWY may come under pressure in the coming days.

Cancel Limits on Coal Mining and Drilling Oil and Natural Gas

Taking a completely difference stance from president Obama, Trump is ready to push for more fossil fuel generation, be it from crude oil, natural gas or coal. This in turn may hit low carbon and clean ETFs like iShares MSCI ACWI Low Carbon Target ETF (CRBN - Free Report) and First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN - Free Report) , while VanEck Vectors Coal ETF KOL is likely to gain ahead.

Abandon U.S. Payments to U.N. Climate Change Program

Trump administration seeks to withdraw billions of payments to United Nation’sgreen climate fund. Instead, he plans to bring that fund back to the U.S. and deploy it in U.S. water and environmental infrastructure. With this, water ETFs like PowerShares Water Resources Portfolio (PHO - Free Report) should get a lift (read: Fight Global Warming with These ETFs).

Curb on Federal Funding to "Sanctuary Cities"

Trump intends to cut funds for states “where local officials don't arrest or detain immigrants living in the country illegally for federal authorities.” If this actually happens, a few muni bond ETFs like iShares National Muni Bond ETF MUB may come under pressure.Muni bonds have another reason to underperform. In a likely low tax environment under the Trump administration, these bonds will likely lose the appeal of federal tax exemptions (read: What Lies Ahead for Muni Bond ETFs in the Trump Era?).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>