Best ETFs for a Trump Presidency
Crypto and small-cap ETFs are among funds that may benefit from Republican leadership.
A storm of political events, starting with President Biden’s poor debate performance followed by Trump’s failed assassination attempt and the Republican convention, has investors considering exchange-traded funds that might perform best under a Trump presidency.
Early ETF beneficiaries of the so-called “Trump Trade” include spot bitcoin ETFs, as candidate Donald Trump and running mate JD Vance have explicitly demonstrated their support for the world’s largest cryptocurrency.
the Trump Trade dates back to 2016 and refers to an investment strategy that emerged following his election as the 45th President of the United States. This strategy is based on expectations of the economic policy associated with his administration and Republican policies in general.
Investment Themes for Trump, Republican Leadership
The Tax Cuts and Job Acts (TCJA), enacted during Trump’s first term in 2017, are set to expire in 2025. Given a second term, Trump is expected to make these tax cuts and deregulatory policies permanent, benefiting sectors like financials, energy, and manufacturing, thereby increasing corporate earnings and stock prices.
Investments that generally perform better under Republican leadership in Washington often align with the party's economic policies, which typically emphasize lower taxes, deregulation, and increased defense spending.
Anticipation of government investment in infrastructure projects, leading to a boost in construction companies, materials suppliers, and industrial sectors incomplete sentence
Sectors, Best ETFs for Trump Presidency
Here are sectors, along with the largest respective ETFs, that may benefit should Trump and Republicans regain leadership in Washington:
Cryptocurrency
If Trump continues to support cryptocurrencies and blockchain technology, as he has suggested in various statements, it could lead to more favorable policies and a supportive regulatory framework for the crypto industry. The largest spot bitcoin ETF is the Blackrock Bitcoin Trust (IBIT).
Short-term Treasury and TIPS
Trump and Republican fiscal stimulus may be generally positive for the economy, but they may also be inflationary, especially the tariff and anti-immigration policies, which would increase the cost of imported goods and the cost of labor. The largest funds in these categories are the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) and the iShares TIPS Bond ETF (TIP).
Energy Sector
Republicans often support fossil fuel industries, including oil, natural gas, and coal. Deregulation and favorable policies can boost these industries, making energy stocks and ETFs attractive investments. The largest energy sector ETF is the Energy Select Sector SPDR Fund (XLE).
Defense and Aerospace
Increased defense spending is a common policy under Republican administrations. Defense contractors and military equipment manufacturers often see increased revenues, making stocks and ETFs in this sector, such as the iShares U.S. Aerospace & Defense ETF (ITA), more appealing.
Financial Sector
Deregulation of the financial industry is typically supported by Republicans, which can benefit banks, insurance companies, and other financial institutions. This can lead to higher profitability and growth for financial sector stocks and ETFs like the Financial Select Sector SPDR Fund (XLF).
Industrial and Infrastructure
Policies promoting infrastructure development and construction can benefit industrial and construction companies. Stocks and ETFs in these sectors, such as the Global X U.S. Infrastructure Development ETF (PAVE), may perform well under Republican leadership.
Healthcare
While the impact on healthcare can be mixed, certain segments like pharmaceuticals and biotechnology may benefit from reduced regulatory scrutiny. However, health insurance companies may face uncertainty depending on healthcare policy changes. The largest healthcare sector fund is the Health Care Select Sector SPDR Fund (XLV).
Small-Cap Stocks
Smaller companies, especially those focused on domestic markets, may benefit from favorable corporate taxes and reduced regulation. Small-cap stock ETFs like the iShares Core S&P Small-Cap ETF (IJR) could see positive performance.
Bottom Line on Politics and Investing in ETFs
Investing in ETFs that stand to benefit from a Trump presidency can be a strategic move for investors looking to capitalize on potential policy-driven market shifts. By focusing on sectors like energy, defense, financials, and cryptocurrency, investors can align their portfolios with anticipated deregulation, tax cuts, and increased government spending.
While the political landscape can introduce volatility, a diversified approach using ETFs can help mitigate risks and provide exposure to areas likely to thrive under Trump and Republican economic policies.