Days after the inauguration, President Donald Trump's impact on the stock market was atop the minds of investors and financial advisors who gathered in Hollywood, Fla., for the 10th annual Inside ETFs conference .
At a roundtable titled "Where To Invest In 2017," which helped to kick off Monday's sessions, "Trump ETFs" became the shorthand for the best investment ideas in the year ahead. Invest in steel, ships and railroads - and more broadly in the U.S. defense industry, said Dennis Gartman, editor and publisher of the Gartman Letter and an expert in the commodities and capital markets.
"Don't overthink this," Gartman advised an audience comprised of financial advisors and investors. "Mr. Trump has proposed investing in infrastructure, investing in the military. Those are going to be easy bets."
Moderator Bob Pisani, the "On-Air Stocks" editor at CNBC, asked the panel of experts about the specific "Trump ETFs" that could benefit from the new U.S. president's focus on tax cuts and fiscal spending. Their responses included the following three exchange traded funds:
- Materials Select Sector SPDR ( XLB ), a $3.6 billion ETF which tracks a market-cap-weighted index of basic materials companies drawn from the S&P 500. Top holdings include Du Pont ( DD ), Dow Chemical ( DOW ) and Monsanto ( MON ).
- First Trust RBA American Industrial Renaissance ( AIRR ), a $152.7 million ETF which tracks an index skewing toward small- and midcap U.S. industrial service companies, as well as the small community banks that lend to them and could benefit from a potential industrial revival under the new political regime. Top holdings include Granite Construction (GVA,) Acuity Brands (AYI) and Hubbell Inc. (HUBB)
- PowerShares Dynamic Building & Construction Portfolio (PKB), a $232.3 million ETF that tracks a quantitative index which selects building and construction companies most likely to outperform based on growth and value metrics. Top holdings include A.O. Smith (AOS), Jacobs Engineering (JEC) and Home Depot (HD).
Andrew Lapthorne, another panelist at the roundtable and head of quantitative research at Societe Generale, said a fairly robust U.S. economy was likely to be pumped up further through fiscal stimulus. But he cautioned that American corporations are more leveraged than they have ever been and valuations are extremely high.
"For me, the biggest risk of the Trump administration is how (Fed Chair Janet) Yellen responds" to his policy moves, he added.
On the sidelines of the ETF conference, Bill Belden, managing director at Guggenheim Investments, described some of his firm's products as belonging to the camp of "Trump ETFs" too.
- Guggenheim S&P 500 Equal Weight (RSP), a $12.23 billion ETF that tracks an equal-weighted index of S&P 500 companies, has overweights in the industrials and basic materials sectors, and a hefty stake in financials, Belden pointed out.
RSP's stock holdings should benefit from lesser regulation, the generally more favorable business climate and higher support for domestic manufacturing (under Trump), he added.
- Guggenheim S&P High Income Infrastructure (GHII), a $25.2 million ETF, invests in roughly 50 high-yielding, infrastructure-themed global stocks. The ETF was outperforming even before Trump's election, but his win has been giving the fund a lot more visibility, Belden said.
"That yield focus has really been beneficial" to its performance, he added, pointing out that most of the stock holdings have long-term government contracts and, as a result, tend to generate consistent and stable cash flow streams. It has a 4.3% distribution yield vs. 2.94% for iShares Global Infrastructure (IGF), one of the largest infrastructure ETFs.
- Guggenheim Dow Jones Industrial Average Dividend (DJD), a $14.4 million ETF, follows an index of dividend-paying companies listed on the Dow Jones Industrial Average, weighted by yield. This ETF version of the "Dogs of the Dow" has worked very well for investors as an alternative to SDPR Dow Jones Industrial Average (DIA), which weights holdings by price, Belden said.
Panelists at the morning's roundtable also discussed how to construct a Trump-focused ETF portfolio given the outlook for the U.S. dollar, bond yields and the volatility index. The four-day event concludes Wednesday.
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