Election Outcomes and ETFs: Navigating Uncertainty
The upcoming U.S. presidential election is expected to have a significant impact on the economy, regardless of who wins. Experts predict that certain exchange-traded funds (ETFs) will thrive in the aftermath, depending on the election outcome.
Taxes, Regulation, and Trade: The Key Factors
The next president will undoubtedly leave their mark on U.S. policy, leading to changes in taxes, regulation, and trade. While these changes pose risks, they also present opportunities for ETFs to outperform. According to Kim Wallace, senior managing director at 22V, “They are risks today, but they turn out to be opportunities once we get there.”
Big Tech and Digital Coin Ecosystems: Potential Winners
If former President Donald Trump wins re-election, ETFs related to Big Tech and digital coin ecosystems may benefit. On the other hand, if Democratic nominee Kamala Harris wins, funds focused on residential construction, defense manufacturing, and elder care may see a boost.
The Battle for Congress: A Key Consideration
The outcome of the battle for Congress will play a significant role in determining which ETFs will outperform. As Kristina Hooper, chief global market strategist at Invesco, notes, “We need to distinguish between what can be accomplished in a divided government versus what can be accomplished in a sweep.”
A Word of Caution: Avoid Making Hasty Changes
Despite the potential for certain ETFs to outperform, financial advisors caution against making hasty changes to investment portfolios based on the election outcome. History has shown that sector-level results can be “counterintuitive,” and surprise is always an element of politics and policy.
Diversification and Volatility: The Keys to Success
In the face of uncertainty, investors should focus on diversification and volatility reduction. Buffer exchange-traded funds, which offer downside protection, may be a valuable tool in this regard. As Hooper notes, “Investors should be thinking about a variety of different tools to offer diversification and dampen volatility in portfolios.”
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