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Doubt Over Trump Agenda Put These ETFs in Focus

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Wall Street witnessed the steepest decline of the year in the last trading session. Dow and the Nasdaq saw the worst one-day drop since September while the S&P 500 tumbled the most in five months. The sharp decline came as Trump warned Republican lawmakers of political instability if the ObamaCare replacement bill falters in a planned March 23 House vote.

The healthcare bill vote is being seen as a testament to Trump’s pro-growth policies that would accelerate economic growth and increase inflation. As such, the prospect of failure to gather votes to dismantle the Affordable Care Act has raised doubts over the ability of Trump to deliver on tax cuts, deregulation and infrastructure spending that has pushed the stock market to record highs (read: Healthcare ETFs in Focus on Obamacare Replacement Plan).

Added to the bearish sentiment is the flattening yield curve, which hit hard the financial stocks – the star performer since election. The Fed’s less aggressive monetary policy led to a decline in Treasury yields. Notably, the S&P Bank index saw its biggest one-day percentage decline since June 27.

Most strategists are bracing for a continued pullback in the stocks. UBS equity and derivatives strategist Julian Emanuel expects a 5–10% correction in the near term while Dennis Gartman sees the sell-off as the start of at least a 5% correction.

Market Impact

The events have led to risk-off trading with lower risk securities, including precious metals and bonds, in vogue. Meanwhile, the broad U.S. market fund SPY saw volume that exceeded 132 million shares on the day, well above the average shares of roughly 74 million.

Most ETFs were severely impacted in the wake of fading hopes of Trump reforms while a few will see a huge spike. Below, we have highlighted some of them:

ETFs in Focus

BioShares Biotechnology Clinical Trials Fund (BBC - Free Report)

The biotech ETF was the worst performer on the day, shedding 6.1% on elevated volume of 38,000 shares compared with 13,000 shares on average. The ETF provides exposure to the companies that have a primary product in Phase I, II, or III of FDA trials by tracking the LifeSci Biotechnology Clinical Trials Index. Holding 70 small cap stocks in its basket, the fund is widely spread out as each firm holds no more than 3.72% share. The fund has accumulated $25.2 million in its asset base and charges a higher fee of 85 bps per year (read: Trump Tweet on Drug Pricing Hits Biotech and Pharma ETFs).

VanEck Vectors Steel ETF (SLX - Free Report)

SLX was the second loser on the day, falling 5.6% on normal daily volume. The fund tracks the NYSE Arca Steel Index and provides exposure to a small basket of 27 stocks. It is heavily concentrated on the top two firms, which account for 28% share while the other firms hold less than 7.2% of assets. American firms dominate the fund’s returns at 34.2%, followed by Brazil (25.1%), United Kingdom (13.5%) and the Netherlands (9.6%). The ETF has amassed $103.2 million in its asset base and charges 55 bps in fees from investors.

SPDR S&P Regional Banking ETF (KRE - Free Report)

KRE fell 5.4% on abnormal volume of 28.3 million shares compared with average daily volume of 7.1 million shares. This fund targets the banking corner of the financial sector and follows the S&P Regional Banks Select Industry Index. It holds 102 stocks in its basket with none holding more than 2.41% of assets. KRE is one of the largest and the most popular ETFs in the banking space with AUM of $3.9 billion and charges 35 bps a year in fees (read: 6 Solid Reasons to Buy Financial ETFs Now).

iPath S&P 500 VIX Short-Term Futures ETN (VXX - Free Report)

While volatility products have been terrible performers over the medium and long terms due to a contangoed market and a steep roll cost, they are intriguing picks during periods of turmoil or uncertainty. That being said, VXX gained 3.7% in the session while volume hit more than 111 million shares, well above the 41.4 million average. The note has amassed $1.1 billion in AUM and charges 89 bps in fees per year. The ETN focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility in the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second months VIX futures contracts.

iShares MSCI Global Gold Miners ETF (RING - Free Report)

This ETF gained 1.8% on elevated volume of 343,000 shares compared with 151,000 shares on average. It follows the MSCI ACWI Select Gold Miners Investable Market Index and holds 34 securities in its portfolio. The product is heavily concentrated on the top two firms with a combined share of 28.2% of total assets. Canadian firms take the lion’s share of 55.3%, while the U.S. and South Africa round out the top three with a double-digit exposure each. With AUM of $147.1 million, RING is the cheapest choice in the gold mining space, charging just 39 bps in fees and expenses (read: Are Gold ETFs Gearing Up for a Rally?).

iShares 20+ Year Treasury Bond ETF (TLT - Free Report)

The products tracking the long end of the yield curve often provide a safe haven. TLT provides exposure to long-term Treasury bonds by tracking the ICE U.S. Treasury 20+ Year Bond Index. It is one of the most popular and liquid ETFs in the bond space with AUM of $6.2 billion. Expense ratio comes in at 0.15%. Holding 35 securities in its basket, the fund focuses on the top credit rating bonds with average maturity of 26.26 years and effective duration of 17.31 years. It was up 0.8% on the day with volume of 10.9 billion shares (see: all Government Bond ETFs here).

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