A generic image of a person with a calculator and a paper with a chart on it.

3 Best ETFs To Make Bullish Bet On U.S. Growth With 'Trump Trades'

A generic image of a person with a calculator and a paper with a chart on it.
Shutterstock photo

[ibd-display-video id=458207]

The answer to what's moving the markets these days should be obvious to any ETF investor with eyes wide open. It's not the price of oil, or the global outlook, or even the all-mighty Fed.

"Unquestionably, what (President) Trump does, says, and tweets seems to affect the financial markets," Brett Wander, CIO of fixed income at Charles Schwab Investment Management, wrote in a Feb. 6 note. "When he's talking about reducing taxes and regulation, or talking about increasing fiscal spending, equities and bond yields tend to rise. When he's talking immigration and trade, it's often the opposite result. So the only thing that seems to compete with Donald is … Donald."

The new administration is squarely at the forefront of one investing pro's mind as he looks to allocate client money using exchange traded funds.

Vern Sumnicht, the CEO of iSectors, describes his best ETF investment ideas for the new year as potentially benefiting from the Trump trifecta of tax reform, lower regulations and infrastructure spending. Still, he is expecting volatility to persist and is keeping portfolios diversified.

Sumnicht founded iSectors, an Appleton, Wis.-based ETF investment strategist, in 2008. The stock market crashes of that decade were an eye-opener, he told IBD in a recent phone call, and convinced him that traditional asset allocation needed a fix.

His firm specializes in ETF-based asset allocation models, including the flagship iSectors Post-MPT Growth Allocation strategy, and has $218 million in assets under management.

Sumnicht gives his outlook below:

We expect Donald Trump's proposed policies of corporate and individual tax reform, reduced regulations, improving infrastructure and support of the energy industry to be the leading factors impacting the stock and bond markets this year. Volatility will persist and diversification will be key. We believe there are opportunities in financials, infrastructure, technology and energy equities.

Economic, political and debt issues throughout Europe and many other countries have kept us focused in the U.S. equity markets and underweight in international and emerging markets. Among other reasons, liquidity, transparency and focus are why we are attracted to the iShares sector equity ETFs; however, we continue to monitor ETFs that track sector indexes at lower costs.

  • IShares U.S. Financials ( IYF ) offers exposure to U.S. banks, insurers, credit card companies and other financial services stocks.

Corporate and individual tax reductions will provide enough fiscal stimulus to allow the Federal Reserve some latitude in raising interest rates this year. In a rising interest rate environment, financial securities do well, while bonds, especially longer maturities, lose value. Therefore, we are overweighting IYF.

  • IShares North American Technology ( IGM ) provides targeted exposure to U.S. and Canadian electronics, computer software and hardware, and informational technology companies.

Many technology companies have been moving offshore to avoid the 35% state and federal U.S. tax rates on corporations; this is one of the highest corporate tax rates in the world. We believe that with congressional support, President Trump will succeed in lowering corporate tax rates and improving the regulatory environment.

Tech companies have one of the most significant opportunities for repatriation of offshore capital, and their growth rate and profit margins will allow them to more effectively leverage the opportunities from lower taxes and less regulation. Such favorable conditions are prompting us to be overweight in U.S. technology equities.

  • IShares U.S. Energy ( IYE ) holds domestic companies that produce and distribute oil and gas.

The new administration's support for the energy industry, which includes coal, pipelines, storage facilities, refineries, exporting, drilling, etc., along with other regulatory reform and lower taxes, causes us to overweight energy equities.


7 Best ETFs For Your Growth And Income Needs

3 Best ETFs For Capturing Improving Foreign Markets And Commodity Markets

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics