When entering the site and if cookies are prevented from being saved, a message must be displayed
in a popup message box informing the user that their local browser settings are preventing
cookies from being saved and that cookies are required for the site to work. Exact text
to be provided for UAT. On OK click of the message, the user should be redirected to
the global landing page (currently ssga.com).
By the end of September, the 2020 US presidential election had already witnessed many twists and turns. However, the news breaking on October 2 that President Trump and First Lady Melania Trump had tested positive for COVID-19 added a new layer of uncertainty to this cycle.
Like the long list of October election surprises — most recently, the Comey Letter in 2016 — this announcement will have a short-term impact on polls and markets. However, the five policy issues discussed in my earlier blog could shape the trajectory of market segments for years to come. Here we offer implementation ideas to position portfolios based on the outcome of the presidential election.
Policies: Biden plans to increase taxes for corporations and high earners, while Trump has called for further tax breaks.
Probability: Passing new tax legislation depends on whether Republicans can maintain control of the Senate — a toss-up as of now. Currently, the probability of the House remaining under Democratic control is 85%.1 So, a split Congress leaves little room to get a tax deal done. However, if the Senate goes to the Democrats and Biden wins, his tax policy plans are likely to be implemented.
Plays: Biden’s policies suggest that investors focus on low tax-sensitive sectors, such as Real Estate. That sector’s earnings may be less affected if tax rates rise, given that its average effective tax rate in 2019 was just 4%.2 Tax-exempt bonds may be another Biden play, as those securities would likely become more attractive sources of returns, considering that the interest paid to investors is not subject to federal taxes.
If Trump wins a second term, high tax rate areas — such as Consumer Staples (29% effective rate) and Retail (24%) — may do well, as their earnings could be positively impacted by paying less in taxes. Additionally, lower individual tax rates could spur consumption and be a benefit to certain consumer-focused markets.
Source: Bloomberg Finance L.P. as of October 2, 2020. Characteristics are as of the date shown and may be subject to change.
Biden: Consider the Real Estate Select Sector SPDR Fund [XLRE], and for a tax-exempt exposure with a potential income boost, consider the SPDR Nuveen Bloomberg Barclays High Yield Municipal Bond ETF [HYMB].
Trump: Consider the Consumer Staples Select Sector SPDR Fund [XLP] and the SPDR S&P Retail ETF [XRT]. XRT has 65% of its exposure in mid- and small-cap stocks,2 with no security contributing more than 2.5% of the portfolio’s overall risk profile3 – mitigating the impact of one single stock upending this play.
Policies: More of a globalist, Biden is likely to repeal current tariffs, while Trump’s “America First” foreign policy agenda will likely feature more tariffs.
Probability: The White House’s sweeping trade powers make it easier for presidents to enact their policies.
Plays: If Biden wins, the negative price action we witnessed when tariffs were levied on Chinese equities may be reversed. As shown below, Chinese stocks fell significantly relative to the US in both March and June 2018 (the first and second round of 25% tariffs on steel imports and then 818 Chinese products). Similarly, given the number of tariffs placed on European products and services, that region could see a boost in sentiment if Biden wins.
Source: Bloomberg Finance L.P. as of October 2, 2020. Past performance is not a guarantee of future results. Index returns are unmanaged and do not include fees.
If Trump wins a second term, focus on the more domestic segments of the US market that are less exposed to international supply chains. As shown below, breaking down the US market by size and style, mid- and small-cap exposures have the lowest revenue generation from outside the US, while value trumps growth in terms of a domestic footprint.
Biden: Consider the SPDR S&P China ETF [GXC], which covers over 740 Chinese equities3 up and down the cap spectrum and is balanced throughout the nation’s economic sectors. Additionally, consider the SPDR EuroStoxx 50 ETF [FEZ].
Trump: Consider the domestically oriented mid- and small-cap exposures with the SPDR Portfolio S&P 400 Mid Cap ETF [SPMD] and the SPDR S&P 600 Small Cap ETF [SPSM].
Policies: Biden favors using renewable sources of energy and infrastructure as part of a COVID-19 economic rebuild. Trump favors a more traditional approach to infrastructure spending.
Probability: Infrastructure spending could have bipartisan support. However, a “green” focus depends on a Biden victory and a strong Democratic footprint in the Senate.
Plays: If Biden wins, go green and get connected with firms focused on innovating and furthering the use of renewables as well as those designing more intelligent infrastructure. With a Biden victory, clean energy will likely continue its strong run but in a more robust manner — the US now consumes more electricity from renewable power than from coal for the first time on record.4 As shown below, clean energy stocks have significantly outperformed the market and traditional energy stocks in 2020 and since the market’s March bottom.
Under Trump, traditional commodity-based firms may benefit due to the uptick in demand for raw materials to build the roads, bridges and airports under his more traditional spending plan.
Source: Bloomberg Finance L.P. as of October 2, 2020. Past performance is not a guarantee of future results. Index returns are unmanaged and do not include fees.
Biden: Consider the SPDR S&P Kensho Clean Power ETF [CNRG], as well as the SPDR S&P Kensho Intelligent Structures ETF [SIMS]. Both funds follow a modified equal-weighted approach and, while balanced across the cap spectrum, are a targeted strategy toward these themes by holding 41 and 46 stocks, respectively.
Trump: Consider focusing on traditional infrastructure and materials firms that could benefit if demand for natural resources increases, with the Industrials Select Sector SPDR Fund [XLI] and the SPDR S&P Metals & Mining ETF [XME]. In addition, XME offers exposure to more than just metals, as over half of the exposure is from metal ore mining, uranium, and specialty and performance chemicals.5
Policies: Biden will likely focus on COVID-19 response plans, while Trump will continue to place a higher emphasis on weakening the Affordable Care Act (ACA).
Probability: Biden’s response plans can be dealt with via executive orders, so the likelihood that we will see action is high. For Trump, depending on the outcome of the Supreme Court vote, the removal of the ACA could also be likely.
Plays: With more health spending to combat, treat and trace COVID-19, a focus on firms pursuing novel treatments, as well as equipment and testing, may benefit under a Biden administration. Given the left-tailed nature of the vaccine race — where winners and losers are likely to emerge — being appropriately diversified within biotech is ideal. A concentrated portfolio may represent far too much idiosyncratic firms-specific risk. As shown below, relative to a market cap-weighted biotech exposure, for an equal-weighted approach, 60% of the exposure is in 57 stocks, compared with just 17 for a more concentrated market cap-weighted strategy.
Source: Bloomberg Finance L.P. as of October 2, 2020. Characteristics are as of the date defined, and are subject to change.
Under Trump, severe headline risk of progressive health care reform as well as drug pricing on big pharma is likely to lessen. Health Care services firms may benefit as well, with the ACA being less powerful. Back in March 2010, the S&P Health Care Services Select Industry Index fell 10% over the subsequent three months after former President Obama signed the ACA into law.6 The inverse could occur if the ACA is completely removed.
Biden: Consider the SPDR S&P Biotech ETF [XBI], as well as the SPDR S&P Health Care Equipment ETF [XHE].
Trump: Consider the SPDR S&P Health Care Services ETF [XHS], as well as a broad health care exposure if there is less headline risk with the Health Care Select Sector SPDR Fund [XLV].
Policies: Biden is likely to be more hawkish toward the power of mega-cap tech firms. Meanwhile, Trump’s first term saw a few testimonies but no real fireworks from tech — unless you consider the record profits they have earned.
Probability: Antitrust review is unlikely to impacted by the results of congressional races. In some instances, executive orders can be implemented to seek similar objectives.
Plays: There is no denying the societal sea change stemming from the COVID-19 pandemic — and the need for innovative technologies will continue to be high.
Under Biden, there could be more room for smaller tech-related firms to prosper as larger mega-cap firms deal with antitrust lawsuits. However, large-cap Technology firms had the best performance and profit growth than any other sector under the Trump administration, rallying by 156% and seeing annual sales climb from $221 billion to $330 billion.7 This will likely continue if antitrust remains less of concern to their operations.
Biden: Consider the SPDR S&P Kensho New Economies Composite ETF [KOMP] or the SPDR FactSet Innovative Technology ETF [XITK]. Both are more balanced across the cap spectrum, as shown below, and not solely reliant on “big tech” to harness the broad change our society is witnessing.
Trump: Consider large-cap-focused exposures, such as the Technology Select Sector SPDR Fund [XLK] or the Communication Services Select Sector SPDR Fund [XLC].
Source: Bloomberg Finance L.P. as of October 2, 2020. Characteristics are as of the date indicated and subject to change.
Look to November and beyond
These key policy issues may take a backseat to some of the headlines scrolling across the screen as we lead up to Election Day. However, they will likely take on a more prominent role once the election is decided. Understanding the issues and the appropriate tools for action is an important portfolio consideration during this election cycle.
1PredictIt as of October 2, 2020 2Bloomberg Finance L.P. as of October 2, 2020 3 Bloomberg Finance L.P. as of October 2, 2020 4 “U.S. Consumed More Renewables Than Coal for First Time”, Wall St. Journal May 28, 2020. 5 FactSet as of October 2, 2020 6 Bloomberg Finance L.P. as of October 2, 2020 7 Bloomberg Finance L.P. as of October 2, 2020 base on aggregated revenue data for the sector from year-end 2016 to today.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.
The views expressed in this material are the views of SPDR ETFs and SSGA Funds Research Team through the period ended October 2, 2020 and are subject to change based on market and other conditions and do not necessarily represent the views of State Street Global Advisors or any of its affiliates. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or
developments may differ materially from those projected. The information provided does not constitute investment advice and it should not be relied on as such.
Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.
Diversification does not ensure a profit or guarantee against loss.
Concentrated investments in a particular sector or industry tend to be more volatile than the overall market and increases risk that events negatively affecting such sectors or industries could reduce returns, potentially causing the value of the Fund’s shares to decrease.
Passively managed funds invest by sampling the Index, holding a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the Index.
Equity securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions. Funds investing in a single sector may be subject to more volatility than funds investing in a diverse group of sectors.
Investing involves risk including the risk of loss of principal.
Growth stocks may underperform stocks in other broad style categories (and the stock market as a whole) over any period of time and may shift in and out of favor with investors generally, sometimes rapidly.
ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.
Standard & Poor's®, S&P® and SPDR® are registered trademarks of Standard & Poor's Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation's financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index.
Distributor: State Street Global Advisors Funds Distributors, LLC, member FINRA, SIPC, an indirect wholly owned subsidiary of State Street Corporation. References to State Street may include State Street Corporation and its affiliates. Certain State Street affiliates provide services and receive fees from the SPDR ETFs. ALPS Distributors, Inc., member FINRA, is the distributor for DIA, MDY and SPY, all unit investment trusts. ALPS Portfolio Solutions Distributor, Inc., member FINRA, is the distributor for Select Sector SPDRs. ALPS Distributors, Inc. and ALPS Portfolio Solutions Distributor, Inc. are not affiliated with State Street Global Advisors Funds Distributors, LLC.
THIS SITE IS INTENDED FOR QUALIFIED INVESTORS ONLY.
No Offer/Local Restrictions
Nothing contained in or on the Site should be construed as a solicitation of an offer to buy or offer, or recommendation, to acquire or dispose of any security, commodity, investment or to engage in any other transaction. SSGA Intermediary Business offers a number of products and services designed specifically for various categories of investors. Not all products will be available to all investors. The information provided on the Site is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.
All persons and entities accessing the Site do so on their own initiative and are responsible for compliance with applicable local laws and regulations. The Site is not directed to any person in any jurisdiction where the publication or availability of the Site is prohibited, by reason of that person's nationality, residence or otherwise. Persons under these restrictions must not access the Site.
Information for Non-U.S. Investors:
The products and services described on this web site are intended to be made available only to persons in the United States or as otherwise qualified and permissible under local law. The information on this web site is only for such persons. Nothing on this web site shall be considered a solicitation to buy or an offer to sell a security to any person in any jurisdiction where such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction.
Before investing, consider the funds' investment objectives, risks, charges and expenses. To obtain a prospectus or summary prospectus which contains this and other information, call 1-866-787-2257, download a prospectus or summary prospectus now, or talk to your financial advisor. Read it carefully before investing.
Not FDIC Insured * No Bank Guarantee * May Lose Value