The Presidential election is now less than six weeks away and it
still appears to be a close race. While the future direction of the
country will be determined by who occupies the White House for the
next four years, the near-term direction of the stock market will
probably be determined more by other factors like the third quarter
earnings, the events in Europe, macroeconomic data in the US and
the fate of the fiscal cliff.
Many people believe that the stocks market fares well under
Republican presidents due to lower taxes and less spending but
history suggests that the there is no clear pattern of
post-election stock marker behavior. (Read: 3 ETFs To Prepare For
The Fiscal Cliff)
However it is almost certain that some sectors will fare better
under President Obama while others may prosper if Governor Romney
wins the election. So, it is time that the investors take a look at
their portfolios and be prepared to realign their portfolios for
the result of the election.
Below we take a look at two sectors that will benefit under the
leadership of Obama and two that will benefit from a Republican
victory and the ETFs that the investors can use to play those
sectors. At the same time, the investors should remember that the
pre-election promises do not always result in actions after the
elections in politics. (Read: Invest like Mitt Romney with These
Three ETFs)
Oil and Gas
Governor Romney says that the Obama administration’s decision to
limit drilling in environmentally sensitive areas and
over-regulation of energy industry are responsible for the high gas
prices in the US.
In his policy paper on energy, Romney has pledged that his
administration will dramatically increase domestic energy
production and partner closely with Canada and Mexico to achieve
North American energy independence by 2020. Romney wants more oil
exploration, faster permitting, and state control of exploration on
federal lands.
We expect the oil and natural gas companies to benefit if Romney
wins the election. (Read: Three Biggest Mistakes of ETF
Investing)
SPDR S&P Oil & Gas Exploration & Production
ETF (XOP)
XOP tracks the S&P Oil & Gas Exploration &
Production Select Industry Index. It charges 0.35% in expense
ratio, while the yield is 0.85% as of now. The fund was introduced
in June 2006 and has managed to attract $1.06 billion in AUM so
far.
The ETF holds 72 securities, in weights ranging from 0.32% to
1.59% of total assets.
Financials
Romney supports less regulation on the financial sector. In
particular, he has pledged repealing the Dodd-Frank financial Act
and replacing it with more-streamlined regulation. He believes that
the onerous regulations have weakened the economic recovery, as the
banks focus on compliance instead of lending.
According to S&P estimates, the eight largest US banks stand
to lose between $22 billion and $34 billion in annual
revenue as a result of Dodd-Frank Act. Most of the projected costs
would be due to Volcker rule. If the Dodd-Frank Act is repealed,
big banks will benefit substantially.
Most likely Romney administration would come up with revamped
version of the Act, which would accommodate some of the highly
profitable but risky activities, by relaxing the rules governing
the derivatives market and restrictions
on investments in private equity and hedge funds.
Financial Select Sector SPDR (XLF)
XLF which tracks the Financial Select Sector Index, is the most
popular ETF in the financial services space, with more than $7.9
billion in assets. Further it is very cost-effective with just 18
basis points in expense ratio and very tight bid-ask ratios. (Read:
Three Excellent Dividend ETFs for Safety and Income)
The ETF holds 81 securities but assigns more than 50% of the
assets to its top 10 holdings, which include all big names in the
financial sector. It pays out a decent yield of 1.67%
currently.
Healthcare
If Obama is re-elected, healthcare sector will benefit
since president's Affordable Care Act will increase the healthcare
spending. Further, hospitals will no longer have to spend
substantial money on providing emergency care to the uninsured.
Overall the healthcare providers, service companies and the
pharmaceuticals companies stand to benefit.
Mitt Romney on the other hand, plans to repeal the
Obamacare.
Health Care Select Sector SPDR Fund (XLV)
XLV tracks the Health Care Select Sector SPDR Index, which
includes companies mainly from the pharmaceuticals, healthcare
providers and services and healthcare equipment and supplies
industries. The ETF has more than $4.9 billion in assets and trades
in heavy volumes. It is however slightly top-heavy with top 10
holdings accounting for more than 60% of the assets.
XLV charges a low expense ratio of 18 basis points while it pays
out an attractive dividend yield of 1.93%.
Clean Energy
President Obama supports a green-energy agenda and has
reiterated his support for “development of cleaner and more
energy-efficient technology”. His administration wants to extend
the tax credits for clean energy companies that are set to expire
at the end of this year.
Obama has spoken several times about his commitment to tackle
the issue of climate change and to protect the environment. In his
convention speech, the President reiterated commitment towards
continued investment in clean coal, as well as wind and solar
energy.
Romney believes that the clean energy is yet to become viable
and the causes of climate change are unknown.
PowerShares Cleantech Portfolio (PZD)
The investors can consider PZD to play this sector, if Obama
wins. PZD tracks the Cleantech Index and invests at least 90% of
its total assets in stocks of cleantech companies, from a broad
range of industry sectors. The ETF is well diversified with 60
holdings, with the top holdings constituting less than 30% of total
assets.
PZD charges 36 basis points to the investors for annual expenses
and currently pays out a decent yield of 1.62%. Launched in October
2006, the fund has so far attracted $67.2 million in assets under
management.
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PWRSH-CLEANTECH (PZD): ETF Research Reports
PWRSH-CLEANTECH (PZD): ETF Research Reports
PWRSH-CLEANTECH (PZD): ETF Research Reports
SPDR-FINL SELS (XLF): ETF Research Reports
SPDR-FINL SELS (XLF): ETF Research Reports
SPDR-FINL SELS (XLF): ETF Research Reports
SPDR-HLTH CR (XLV): ETF Research Reports
SPDR-HLTH CR (XLV): ETF Research Reports
SPDR-HLTH CR (XLV): ETF Research Reports
SPDR-SP O&G EXP (XOP): ETF Research Reports
SPDR-SP O&G EXP (XOP): ETF Research Reports
SPDR-SP O&G EXP (XOP): ETF Research Reports
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