XLF: 3 ETFs to Buy if you Believe Trump Will Be Re-elected

The United States presidential elections have the world on edge. President Donald Trump has, time and again, warned the people of America that if Democrat candidate Joe Biden wins the White House, stocks will crash, retirement accounts will vanish, and an economic depression “the likes of which you’ve never seen” will engulf the nation. However, the outcome of November 3^rd is anything but certain. Strategists say that a re-election of President Trump would favor growth stocks, while a win for Biden could be a positive for cyclical value equities.

Though Democratic nominee Biden is currently leading the polls, President Trump has a history of defying expectations, as seen in the 2016 elections. Trump is backed up by immense voter confidence across the country, as reflected by gatherings of thousands at his rallies. This suggests a fair chance of Trump getting re-elected for a second term, even if the polls currently reflect the opposite.

Trump’s advocacy regarding the stock market performance have generated substantial investor confidence over the past few months, attracting more people to invest in the market. However, the healthcare, renewable energy, and cannabis sector will definitely take a hit if Trump wins.

One of the biggest policies promoted by Trump in his re-election bid, apart from the Second Amendment, is his foreign policies and the need for having a well-equipped defense system. His administrative plan of deregulating and cutting taxes for the financial oil & gas industries could bear fruit for industry participants. Consequently, ETFs such as the Financial Select Sector SPDR Fund (XLF), iShares U.S. Aerospace & Defense ETF (ITA), and SPDR S&P Oil & Gas Exploration & Production ETF (XOP) stand to profit significantly if he gets re-elected.

Financial Select Sector SPDR Fund (XLF)

The investment objective of the XLF is to provide investment results that correspond to the performance of the S&P Financial Select Sector Index. The index seeks to provide an effective representation of the financial sector of the S&P 500 index. The ETF offers extremely liquid exposure to the heavyweights in the US financials segment, including financial services, insurance, commercial banks, capital markets, REITs, thrift & mortgage finance, consumer finance, and real estate.

XLF has $17.1 billion in AUM and an expense ratio of 0.13%. The fund pays an annual dividend of $0.6, yielding 2.52%. The ETF has an MSCI ESG Fund Rating of BBB based on a score of 5.06 out of 10.

The fund currently holds 66 companies with weightings of 34.4% to Banks, followed by 26.5% and 18.7% to the Capital Markets and the Insurance sector, respectively. The top 3 holdings of the fund are Berkshire Hathaway Inc. Class B (BRK.B), JPMorgan Chase & Co (JPM), and Bank of America Corp (BAC), with the weights of 15.7%, 10.9%, and 6.8%, respectively.

2024 STOCK MARKET OUTLOOK

XLF closed yesterday’s trading session at $24.31, gaining more than 12.7% in the past six months. The fund has witnessed net inflows of $601.43 million in the past month and is presently trading 22.5% below its all-time high of $31.38.

iShares U.S. Aerospace & Defense ETF (ITA)

ITA has a reasonable representation of the aerospace & defense industry. The ETF seeks to track the investment results of the Dow Jones US Select Aerospace & Defense Index composed of US manufacturers, assemblers and distributors of commercial, military aircrafts and other defense equipment. Companies in this sector tend to be growing at a slow pace, but are remarkably stable due to the widespread use of long-term government contracts for most of their services.

ITA has $2.37 billion in AUM and an expense ratio of 0.42%. The fund pays an annual dividend of $3.24, translating into a 2.15% yield. The ETF has an MSCI ESG Fund Rating of A based on a score of 5.89 out of 10.

The fund currently holds 37 companies, with the Aerospace and Defense sector naturally leading the way, with a 97.8% weighting. The ETF also has an exposure of 1.3% and 0.8% to the Industrial Machinery and Leisure Products industries, respectively. The top 3 holdings of the fund are Lockheed Martin Corp (LMT), Raytheon Technologies Corp (RTX), and The Boeing Co (BA), with weights of 18.7%, 17.2%, and 9.1%, respectively.

ITA has lost 3.7% in the past month to close yesterday’s trading session at $154.88. The ETF witnessed a net outflow of $111.5 million during the same month as the first stimulus package for the aviation industry expired at the end of September, and hopes for another bailout relief build up. However, the fund is up more than 28% from its March low and is presently trading 35.6% below its 52-week high of $240.62.

SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

The investment objective of XOP is to provide investment results that correspond to the total return performance of the S&P Oil & Gas Exploration & Production Select Industry Index. The index represents the oil and gas exploration and production segment of the S&P Total Market Index. XOP offers an equal-weight approach to the exploration and production sub-sector of the domestic energy market.

XOP has $1.62 billion in AUM and an expense ratio of 0.35%. The fund pays an annual dividend of $0.88, yielding 2.18%. The top 3 of 43 holdings by the fund are Devon Energy Corporation (DVN), Diamondback Energy Inc. (FANG) and Parsley Energy Inc. (PE), with weights of 3.9%, 3.8%, and 3.7%, respectively.

The ETF closed yesterday’s trading session at $132.36, gaining 1.8% in the past month. XOP has recovered 37.8% from its March low. Moreover, the fund has witnessed a net inflow of $1.29 billion in the past year.

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XLF shares were trading at $24.91 per share on Tuesday morning, up $0.60 (+2.47%). Year-to-date, XLF has declined -17.41%, versus a 5.64% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...