After fizzling out in summer, Trump trade resurfaced with the long-awaited tax cut talks last month. In fact, the President proposed the biggest U.S. tax overhaul in three decades that would make America more competitive (read: 6 ETFs Set to Win on Trump's Tax Reform).
The plan calls for lowering corporate income tax rates from 35% to 20% and reducing the number of income tax brackets from seven to three. While the top income tax rate will be cut from 39.6% to 35%, the bottom tax rate will rise from 10% to 12%. Additionally, the Trump administration proposed a shift from the current 35% worldwide tax system to a territorial system, allowing companies to send their offshore profits back to the United States without incurring extra taxes.
The enthusiasm strengthened last week following the Senate’s passage of the $1.4 trillion budget resolution that paves way for tax cuts later this year or early next year. Though proposed tax cuts are expected to add up to $1.5 trillion to the deficit over the next 10 years, it will create an economic surge, boosting job growth in manufacturing and other sectors. Treasury Secretary Steven Mnuchin claims that increased growth will generate new tax revenues that it will reduce deficits and help pay down the nation's $20 trillion debt (read: GOP Nears Tax Reform: Buy These ETFs).
Investors should note that tax reform is a key catalyst to keep the bull market alive. As such, hopes of a major tax overhaul have sparked a strong rally in the stock market in a month.
While there have been winners in every corner of the space, several ETFs have easily crushed the returns of the Dow Jones in one month by wide margins. Below, we have presented a bunch of those that are expected to continue their outperformance in the coming months and are better plays to ride out the Trump trade resurgence.
iShares U.S. Home Construction ETF (ITB - Free Report) – Up 10.2%
This fund provides a pure play to home construction stocks by tracking the Dow Jones U.S. Select Home Construction Index. With AUM of $2 billion, it holds a basket of 47 stocks while charges 44 bps in annual fees. The product trades in a heavy volume of around 2.7 million shares a day on average and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: 4 Favorite Sectors of Q3 Earnings and Their ETFs & Stocks).
PowerShares Dynamic Semiconductors Fund (PSI - Free Report) – Up 9.9%
This fund targets the semiconductor industry of the broad technology sector. It follows the Dynamic Semiconductor Intellidex Index, holding 30 stocks in its basket. The product has amassed $344.9 million in its asset base and trades in moderate average volume of around 80,000 shares a day. The product charges 63 bps in fees a year from investors and has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: Top-Ranked ETFs That More Than Doubled the S&P 500 This Year).
PowerShares S&P SmallCap Quality Portfolio (XSHQ - Free Report) – Up 8.9%
This ETF offers exposure to the small-cap segment of the U.S. stock market by tracking the S&P SmallCap 600 Index that have the highest quality score, which is calculated based on the average of three fundamental measures: return on equity, accruals ratio and financial leverage ratio. This approach results in a basket of 117 securities and charges 29 bps in annual fees. The fund has accumulated $1.3 million in its asset base since its inception in early April and trades in a meager volume of less than 500 shares (read: Small Cap ETFs & Stocks Crushing Russell 2000).
Innovator IBD 50 ETF (FFTY - Free Report) – Up 7.1%
This fund is an actively managed fund and looks to be the one-stop way to invest in the top 50 growth names based on IBD (Investor’s Business Daily) proprietary estimation. The IBD 50 targets companies generating outstanding profit growth, big sales increases, wide profit margins and high return on equity. This approach provides exposure to 50 stocks in the basket, charging 80 bps in annual fees. FFTY has AUM of $126.2 million and average daily volume of 43,000 shares.
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC - Free Report) – Up 6.6%
This ETF offers broad exposure to the technology sector by tracking the NASDAQ-100 Technology Sector Index. It holds 34 stocks in its basket. QTEC is a large-cap centric fund with AUM of $2.2 billion and average daily volume of around 183,000 shares. It charges 60 bps in annual fees and has a Zacks ETF Rank #1 with a High risk outlook (read: Top-Ranked Sector ETFs & Stocks for Q4).
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