5 Sector ETFs to Gain Under Trump Presidency

After defeating Kamala Harris in the presidential race, Donald Trump won back the White House and is set to become the 47th President. His victory led to record-breaking rallies in U.S. stocks and riskier assets like Bitcoin. 

The market is betting that the second Trump administration will provide a boost to stocks. Trump's policies on restricting illegal immigration, enacting new tariffs, lowering taxes and reducing regulations may boost the economy and inflation. The anticipation of greater tariff barriers and a step to move manufacturing back home will drive stocks higher.

The stock market could witness a stronger rally toward the end of the year following Donald Trump’s victory than it did when he won his first term eight years ago, according to JPMorgan Chase (read: 4 Sector ETFs to Gain on Trump's Triumph).

Let’s delve into sectors that may benefit from the Trump administration and the ETFs worth betting on.

Banks

Banks are well-positioned to benefit from Trump’s deregulation and lower corporate tax policies. An analyst at Wells Fargo believes that the Trump victory can usher in a “new era” of lighter financial regulation after 15 years of stricter oversight following the financial crisis of 2008-2009. The reduced regulations will lower compliance costs and increase profit margins for banks, providing a more favorable operating environment for financial institutions. 

SPDR S&P Bank ETF KBE, with a Zacks ETF Rank #2 (Buy), seems a compelling pick. It offers equal-weight exposure to 94 banking stocks by tracking the S&P Banks Select Industry Index. Regional banks dominate the portfolio with a 72% share, while diversified banks, commercial & residential mortgage finance, diversified financial services and asset management & custody banks take the remainder. SPDR S&P Bank ETF has amassed $2.4 billion in its asset base while trading in a heavy volume of 2 million shares a day, on average. The product charges 35 bps in annual fees and soared about 10% over the past week.

Energy

Trump emphasizes energy independence, and his policies are likely to favor fossil fuels, promoting deregulation in the oil, gas, and coal industries. He is in favor of expanding oil exploration, including increased fracking activities. To tap this trend, investors could bet on Zacks ETF Ranked #2 Energy Select Sector SPDR XLE.

Energy Select Sector SPDR is the largest and the most popular ETF in the energy space, with AUM of $37.3 billion and an average daily volume of 14.5 million shares per day. It offers exposure to the broad energy space and follows the Energy Select Sector Index. Energy Select Sector SPDR holds 22 securities in its basket, with a heavy concentration on the top two firms. Energy Select Sector SPDR charges 9 bps in annual fees and has gained more than 6% in a week.

Defense

With a strong focus on military spending and defense, the second Trump administration may prioritize increased defense budgets. iShares U.S. Aerospace & Defense ETF ITA appears to be a compelling pick to play this sector. 

It provides exposure to U.S. companies that manufacture commercial and military aircraft and other defense equipment by tracking the Dow Jones U.S. Select Aerospace & Defense Index. iShares U.S. Aerospace & Defense ETF holds 35 stocks in its basket with AUM of $6.3 billion and an expense ratio of 0.40%. iShares U.S. Aerospace & Defense ETF trades in an average daily volume of around 456,000 shares. It has risen about 8% in a week and has a Zacks ETF Rank #2.

Bitcoin Mining

The world's largest cryptocurrency topped $90,000, driven by optimism surrounding Donald Trump's potential crypto-friendly policies. Trump embraced digital assets during his campaign and vowed to make the United States “the crypto capital of the planet.” As such, cryptocurrency stocks are poised to gain even higher. While there are many options in the crypto mining space, First Trust SkyBridge Crypto Industry & Digital Economy ETF CRPT has been leading since Trump’s win. It soared more than 36% in a week.

First Trust SkyBridge Crypto Industry and Digital Economy ETF is designed to provide exposure to companies that SkyBridge believes are driving cryptocurrency, crypto assets and digital economy-related innovation. SkyBridge identifies securities primarily via “bottom-up” research focused on finding companies leading in the crypto industry ecosystem. First Trust SkyBridge Crypto Industry & Digital Economy ETF holds 35 stocks in its basket and charges 85 bps in fees per year from investors. It has amassed $78.3 million in its asset base and trades in an average daily volume of 57,000 shares (read: 5 Best ETFs of 2024's Top Week Courtesy Trump Win, Fed Rate Cut).

Manufacturing

Trump’s administration is expected to revamp its “America First” approach, offering new or enhanced tax breaks and subsidies to boost domestic manufacturing. Investors should tap this trend with Tema American Reshoring ETF RSHO, which was launched in May last year, accumulating $134.9 million in its asset base. It is an actively managed ETF that seeks to provide long-term growth by investing in companies that stand to benefit from manufacturing moving back to US shores. The fund predominantly invests in companies that span sectors such as industrials, transport, infrastructure, materials and semiconductors.

RSHO holds 30 stocks in its basket and charges 75 bps in annual fees. It has gained about 8% over the past week.

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