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Bet on Trump Trade & Republicans with These New ETFs

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With the tax bill finally on the President’s table for signature, Donald Trump has managed to score his first major legislative win after 11 months in office. The legislation will change the tax code for Americans for the first time in 30 years, thus providing a huge boost to stocks. This is a huge victory for Trump and the pass for mid-term election next year.

A massive $1.4-trillion tax cut will create an economic surge, boosting job growth and reflation trade. It will further accelerate earnings, leading to increased dividend and buyback activities and pave the way for increased mergers and acquisitions. This indicates the continued of the second-largest bull run in the history (read: Tax Bill: What ETF Investors Need to Know).  

The U.S. stock market has been witnessing a rally over the past year with the S&P 500, the Dow Jones and the Nasdaq Composite Index rising 18.7%, 24.4% and 13.5%, respectively. The Dow Jones has been the biggest beneficiary of the rotation in leadership in the large-cap domestic space. Notably, the index has moved up 5,000-points this year — the biggest annual gain in its history – and logged its 70th record close of the year, the highest-ever number of record closes in a calendar year.

The tax reform, likely to become law next year, has boosted the confidence in Trump’s ability to deliver on his other promises next year. Now, Trump will move to other campaign promises like dismantling the Dodd-Frank Act as well as boosting military and infrastructure spending. Trump has promised to spend a trillion dollar on rebuilding highways, bridges, hospital and other U.S. infrastructure during his campaign. He has also promised to revive U.S. manufacturing and rehabilitate the country’s aging infrastructure.

Per analyst Stefanie Miller, Trump will likely provide a notice of intent to withdraw from NAFTA by the end of March. The analyst estimates there is a 65% chance Trump will announce a NAFTA withdrawal in the first quarter of 2018, but sees only a 35% chance the announcement will ultimately result in termination of North American trade policies (read: ETFs Impacted by NAFTA Talks).

Given this, investors should bet on the Trump trade with the following ETFs. Most of these funds are newly launched in the market based on Trump’s pro-growth reforms:

EventShares U.S. Tax Reform ETF TAXR

This ETF is actively managed and seeks to provide exposure to those companies that are poised to see the greatest benefit from the implementation of significant tax reform in the  United States. It is home to 35 stocks with none accounting for more than 3.4% share and allocates 27% weight to industrial sector, followed by financials (15%), technology (14%) and consumer discretionary (12%). The product has amassed $5.3 million in its asset base since its debut on Oct 17. The fund charges 85 bps in annual fees and trades in a lower volume of 24,000 shares (read: ETFs to Bet on the Final Tax Bill: What Hot, What's Not).

EventShares Republican Policies Fund GOP

This product is also actively managed and provides exposure to investments that are impacted by Republican Party's political agenda. In total, the fund holds 41 securities in its basket with none accounting for more than 3.01% of assets. Industrials and financials take the largest share at 29% and 20%, respectively while energy, materials and information technology round off the top five. GOP has amassed $1.7 million in AUM so far since its inception on Oct 17 and charges higher expense ratio of 0.75%. It trades in paltry volume of less than 4,000 shares a day on average.

Global X U.S. Infrastructure Development ETF (PAVE - Free Report)

This is the first ETF targeting infrastructure companies in the United States and looks to benefit from Trump’s plans for this space. It follows the INDXX U.S. Infrastructure Development Index, which measures the performance of the companies that stand to benefit from a potential increase in infrastructure activity in the United States, including those involved in the production of raw materials, heavy equipment, engineering, and construction (read: 5 ETFs to Buy for 2018 if Infrastructure Reform Kicks In).

Holding 90 stocks in its basket, the fund is spread out across components with each holding less than 3.6% of the assets. About 67% of the portfolio is dominated by industrials while materials sector takes 26% share. The fund has accumulated $22.4 million in its asset base since its inception on Mar 6 and trades in average daily volume of 14,000 shares. Expense ratio comes in at 0.47%.

Point Bridge GOP Stock Tracker ETF MAGA

This is also the first ETF, which seeks to invest in companies supportive of the Republican Party. It tracks the Point Bridge GOP Stock Tracker Index, which  comprises companies whose employees and political action committees are highly supportive of Republican candidates for election to the United States Congress, the Vice Presidency or the Presidency and party-affiliated federal committees or groups that are subject to federal campaign contribution limits.

The fund uses an equal weight methodology  for a basket of 151 stocks and has 0.72% expense ratio. It has amassed $33.4 million in its asset base since its debut on Sep 7 and sees average daily volume of 27,000 shares.

Corporate Bond ETFs: A Wild Card

WisdomTree Fundamental U.S. Corporate Bond Fund WFIG

This fund looks to benefit from declining issuance and improving credit quality over the long term resulting from lower tax rates. According to WisdomTree, “in the long run, tax cuts could diminish the benefit of the corporate debt tax shield, decrease leverage and shift corporations away from debt, thus increasing the demand/cost of equity. However, given that legacy debt would likely be grandfathered in, these changes would occur only as previously issued debt rolled off/matured. This implies that corporate debt issuance could decline and aggregate credit quality could improve” (see: all the Corporate Bond ETFs here).

The ETF provides exposure to the U.S. investment grade corporate bond market by using alternative to market capitalization-weighted or actively managed strategies. The approach results in a basket of 89 securities with none holding more than 3.22% of the assets. WFIG charges 18 bps in fees per year and has accumulated $5 million in its asset base since its inception on Apr 27, 2016. Volume is paltry at under 1000 shares a day on an average.
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