In just a few days, Americans head to the polls for the 2018 midterm elections. Currently, many political pundits are forecasting the Democrats gaining control of the House of Representatives with the Republicans maintaining control of the Senate.
The energy sector, which has been a solid performer for most of this year, is a group with sensitivity to political change. Some market observers expect that a Republican midterm sweep will benefit traditional energy investments and exchange traded funds while a Democrat sweep would lift alternative energy investments.
“In August, the Trump administration moved to repeal the Clean Power Plan (CPP), a 2015 directive requiring states to devise plans to shift away from coal and traditional emissions-intensive power generation in favor of cleaner renewable energy sources,” said State Street Global Advisors (SSgA) in a recent note.
ETF Ideas To Consider
Among the ETF ideas to consider if Democrats gain control of both houses of Congress are the SPDR MSCI ACWI Low Carbon Target ETF (NYSEArca: LOWC) and the newly minted SPDR Kensho Clean Power ETF (NYSEArca: XKCP).
XKCP seeks to provide exposure to the clean power industry both in terms of generation and the underlying technology driving it. LOWC tracks the MSCI ACWI Low Carbon Target Index, which tries to address carbon exposure by overweighting companies with low carbon emissions relative to sales and per dollar of market capitalization, compared to the broader market.
“If Democrats win the House and/or Senate, they are likely to challenge the newly proposed Affordable Clean Energy (ACE) Rule that is forecasted to be less restrictive than the CPP on carbon emission requirements and support using traditional fossil fuel power,” said SSgA.
Energy ETFs that could benefit from the Republicans maintaining or expanding their majorities in Congress include the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) and the SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES).
XOP “seeks to provide exposure the oil and gas exploration and production segment of the S&P TMI, which comprises the following sub-industries: Integrated Oil & Gas, Oil & Gas Exploration & Production, and Oil & Gas Refining & Marketing,” according to State Street SPDR.
“A Republican sweep would continue to benefit traditional energy producers, with less regulation and additional lands open for leasing, including areas in the outer continental shelf,” said SSgA.
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