ETF playbook: Trump vs Harris election scenarios

With the U.S. election around the corner, investors are preparing for how Trump and Harris policy scenarios could impact markets. Here’s a look at potential ETF strategies tailored to both scenarios, focusing on sectors likely to see movement based on each candidate's policy priorities.

Trump scenario: Emphasis on domestic energy, defense, and reregulation

If Trump returns to office, his policies are likely to prioritize energy independence, defense spending, and deregulation. This could favor sectors heavily focused on U.S. domestic markets and natural resources. Here are some ETFs that may align with a Trump administration:

Energy and Oil and Gas ETFs

• SPDR S&P Oil & Gas Exploration & Production ETF (XOP): Trump’s pro-energy stance may drive gains in this ETF, which holds companies engaged in U.S. oil and gas exploration.

• Energy Select Sector SPDR Fund (XLE): Broad exposure to U.S. energy majors, benefiting from potential regulatory rollbacks and supportive policies.

Defense and Aerospace ETFs

• iShares U.S. Aerospace & Defense ETF (ITA): Higher defense spending would directly impact this ETF, focused on companies supplying the aerospace and defense sectors.

• SPDR S&P Aerospace & Defense ETF (XAR): Provides additional options for investors looking to position for increased military spending.

Financials and Steepener ETFs     

• Financial Select Sector SPDR Fund (XLF): Deregulation of banking and finance could benefit U.S. financial stocks, making XLF a potential winner in this scenario.

• SPDR S&P Regional Banking ETF (KRE): Regional banks could benefit from reduced regulatory oversight, supporting gains in KRE.

• Amundi US Curve Steepening 2-10Y UCITS ETF (STPU): A Trump victory could lead to inflationary pressures, steepening the yield curve.

Small-Cap US equity ETFs

• iShares Russell 2000 ETF (IWM): Small-cap stocks could outperform under Trump's policies, which focus on deregulation and domestic growth.

• Vanguard Small-Cap Value ETF (VBR): Small-cap value stocks could also benefit from supportive policies aimed at U.S.-focused businesses.

Gold ETFs as a hedge against political volatility

• SPDR Gold shares (GLD): Gold can provide a safe haven, especially with anticipated volatility in a Trump scenario.

• VanEck Vectors Gold Miners ETF (GDX): For those seeking leveraged exposure, GDX offers access to gold mining companies, benefiting from rising gold prices.

Harris scenario: Green Energy, global cooperation, and tech relief

If Harris secures the presidency, her policies are expected to focus on renewable energy, global cooperation, and technology investment. Harris’s approach could promote sustainable energy and global trade, creating opportunities in green sectors and possibly providing relief for Chinese equities, which could benefit from a more cooperative foreign policy stance.

Renewable Energy ETFs

• iShares global clean Energy ETF (ICLN): Harris’s potential push for renewable energy could benefit ICLN, which focuses on solar, wind, and other clean energy sources.

• Invesco Solar ETF (TAN): A solar-focused ETF that could thrive under a Harris administration, especially if policies incentivize renewable energy production.

China and China tech ETFs

• KraneShares CSI China Internet ETF (KWEB): Improved U.S.-China relations may relieve regulatory pressure on Chinese tech stocks, favoring KWEB, which holds major Chinese internet companies like Alibaba, Tencent, and Baidu.

• iShares MSCI China ETF (MCHI): Provides broad exposure to China’s market, potentially benefiting from renewed U.S.-China cooperation, which could drive investor confidence in Chinese equities.

Asia, EM and Mexico ETFs

• iShares Asia 50 ETF (AIA): This ETF provides exposure to large-cap companies across Asia, potentially benefiting from improved regional trade relations under Harris.

• iShares MSCI emerging markets ETF (EEM): Broader exposure to emerging markets could benefit from global economic recovery and cooperation, especially with a focus on sustainable practices.

• Invesco Mexico ETF (EWW): With a more cooperative U.S.-Mexico relationship, this ETF could benefit from trade policies that favor Mexican exports and investments.

Infrastructure and Technology ETFs

• Global X US infrastructure development ETF (PAVE): A Harris-led administration would likely focus on sustainable infrastructure projects, making PAVE a strong pick.

• Invesco QQQ ETF (QQQ): Investment in technology and innovation could boost large-cap tech, and QQQ provides exposure to the Nasdaq-100’s biggest players.

Sustainable bond ETFs

• iShares ESG Aware USD Corporate Bond ETF (SUSC): Corporate responsibility in the fixed-income space may align well with Harris’s fiscal discipline and ESG focus.

• VanEck Green Bond ETF (GRNB): For those seeking green bond exposure, GRNB includes bonds used to fund eco-friendly projects, aligning with Harris’s potential focus on climate change.

Read the original analysis: ETF playbook: Trump vs Harris election scenarios