Donald Trump’s victory set off one of the steepest post-election rallies in recent memory. While many markets strengthened on the “Trump bump,” some segments and exchange traded funds stood out from the rest.
For instance, the S&P 500 Financials Sector, along with related ETFs like the Fidelity MSCI Financials Index ETF (NYSEArca: FNCL), Financial Select Sector SPDR (NYSEArca: XLF), iShares U.S. Financials ETF (NYSEArca: IYF) and Vanguard Financials ETF (NYSEArca: VFH), experienced a strong boost from the election amid speculation that President Trump will loosen regulations, help the economy expand and cut taxes.
The Trump administration’s expansionary policies would be especially beneficial for banks since the segment is sensitive to the overall economy. Moreover, the expansionary policies have fueled bets of increased Federal Reserve interest rate hikes to rein in a potentially overheating economy and rising inflation, which further supports lending revenue and their bottom line among bankers and insurers.
For target exposure to banks, the First Trust NASDAQ ABA Community Bank Index Fund (NasdaqGM: QABA), PowerShares S&P SmallCap Financials Portfolio (NYSEArca: PSCF) and PowerShares KBW Regional Bank Portfolio (NYSEArca: KBWR) include large tilts toward small- and micro-cap bank stocks.
The larger and more popular SPDR S&P Bank ETF (NYSEArca: KBE) and SPDR S&P Regional Banking ETF (NYSEArca: KRE) also include large tilts toward the small and midsized segments, along with some large-cap exposure. KBE and KRE equally weight their component holdings and have a larger weights toward mid-caps, along with large-caps.
Furthermore, the SPDR S&P Insurance ETF (NYSEArca: KIE), iShares US Insurance ETF (NYSEArca: IAK) and PowerShares KBW Property & Casualty Insurance Portfolio (NasdaqGM: KBWP) could help investors capture broad exposure to insurance providers as interest rates rise.
Trump’s election win has also been a boon for small-cap stocks and related ETFs, like the iShares Russell 2000 ETF (NYSEArca: IWM), iShares Core S&P Small-Cap ETF (NYSEArca: IJR) and Vanguard Small Cap ETF (NYSEArca: VB), as traders bet on Trump’s “America First” mantra that would help domestically-oriented companies led the next leg in economic growth.
Similarly, the First Trust RBA American Industrial Renaissance ETF (NasdaqGM: AIRR) has acted as a play on the president’s vow to rebuild the country’s ailing infrastructure during his election night speech, The small- and mid-cap oriented industrial ETF includes large weights toward the infrastructure segment that could capitalize on increased fiscal spending.
The strengthening U.S. economic outlook and a tightening Federal Reserve monetary policy have been bullish for the U.S. dollar as well. With the Fed expected to hike rates three more times this year, the diverging monetary policy from other global central banks has helped the USD appreciate in the foreign exchange markets. Investors could gain exposure to the stronger greenback through related ETFs, including the The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which is seen as a proxy for the U.S. Dollar Index, and the actively managed WisdomTree Bloomberg U.S. Dollar Bullish Fund (NYSEArca: USDU), which tracks the dollar against a broader group of developed and emerging market currencies in an attempt to outperform the Bloomberg Dollar Total Return Index.