3 ETF ‘Trump Trades’ That Tripped

The markets once again prove that crystal balls are best used as paperweights. 

When it comes to investing, the problem with a sure thing is that no one can really be sure where the market will go.

A look at some of the sure-thing, conventional-wisdom Trump trades following last November’s U.S. presidential election is a humbling reminder that crystal balls aren’t crystal clear, and investors can often be caught on the wrong side of a trade.

Bet On Rising US Dollar

The U.S. dollar was heralded as the big beneficiary of the incoming Trump administration. A business-friendly president determined to “make America great again” could mean only one thing for the greenback: upside. The dollar likes a growing economy.

But seven months into the year, the dollar is not only lower, it’s at its lowest level since last summer. It’s down some 8% since its early January multiyear highs.

Among the things weighing on the dollar is eroding investor confidence in President Trump’s ability to spur economic growth. His administration is struggling to pass promised legislation, such as a health care bill and tax reform. Seven months in, blockbuster growth isn’t such a given. 

In ETF terms, that performance can be seen in a fund like the PowerShares DB US Dollar Index Bullish Fund (UUP), the biggest dollar-tracking ETF, with $545 million in assets.

The fund goes long the U.S. dollar and shorts the currencies of major U.S. trading partners. The portfolio should go up when the dollar goes up. In 2017, UUP has slid nearly as much as the dollar, and investors have now yanked some $265 million from the fund this year.

Bet On Russia

The day after the presidential election, we were among the many who called it: Russian ETFs were poised to gain from a Trump presidency.

Like many others in this industry, we too thought Trump’s outspoken efforts to improve relations with Russia were going to translate into stock gains for Russia ETFs.

That didn’t happen.

Of all the single-country ETFs in the market today, as first reported by MarketWatch this week, Russia is the only one treading in negative territory in 2017. That decline is largely a result of weak crude oil prices, which are a key driver in Russia’s economy.

The VanEck Vectors Russia ETF (RSX) and the iShares MSCI Russia Capped ETF (ERUS)—the largest Russia ETFs—are both down in 2017. RSX, with $2 billion in assets, invests in Russian companies listed both in Russia and overseas, while ERUS tracks a market-cap-weighted index of securities listed on Russian stock exchanges. ERUS has $472 million in assets.

As these ETFs dropped, investors have pulled $478 million from RSX, but have added more than $80 million to ERUS so far in 2017.

Stay Away From Mexico

Nothing about Trump’s initial rhetoric suggested a pro-Mexico administration. On the contrary, there was going to be a border wall built between the U.S. and Mexican frontier, paid for by Mexico. Immigration laws were going to get tougher; trade with our southern neighbors harder. In that environment, Mexico stocks were going to suffer—or so it seemed.

But the iShares MSCI Mexico Capped ETF (EWW) has rallied—and sharply—defying all expectations.

The $1.4 billion fund is up nearly 32% so far this year. Helping fuel those gains is a strengthening local currency, up some 15% since the election, as well as easing concerns that trade agreements were going to go up in flames.  

But even as EWW rallied, investors have pulled money out of the fund to the tune of $802 million in net redemptions year-to-date. Not only were they wrong about where EWW was headed, they bet with their dollars on the wrong side.

Charts courtesy of StockCharts.com

Contact Cinthia Murphy at [email protected]