U.S. President Donald Trump’s first major legislative move to overhaul the U.S. healthcare system had another setback after Republican leaders in the Senate abandoned the healthcare bill aiming to repeal and replace Obamacare.
The collapse of the bill in Senate renewed worries over Trump’s ability to deliver on other agenda including tax cuts, deregulation and infrastructure spending that have pushed the stock market to record highs. Notably, no major legislative achievements were made in the first six months of the Trump presidency, casting serious doubt over its administration.
Additionally, the healthcare bill is being seen as a testament to Trump’s pro-growth policies that would accelerate economic growth and increase inflation.
Further, the move could result in a severe political tussle between the Senate and the House, and between the White House and Congress. As a result, markets are losing confidence in Trump’s administration and its promises.
The event has led to risk-off trading with lower risk securities, including precious metals and bonds, in vogue. Given this, we have highlighted a few ETFs that could benefit or drop in the wake of fading hopes of Trump reforms.
ETFs to Benefit
SPDR Gold Trust ETF GLD
The collapse of GOPs’ healthcare bill is weighing on the U.S. dollar thereby lifting the price of gold. In addition, gold is often viewed as a store of value and a hedge against market turmoil. The product tracking this bullion like GLD could be an interesting pick to play at present. The fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. It is the ultra-popular gold ETF with AUM of $32.8 billion and heavy volume of nearly 7.7 million shares a day. It charges 40 bps in fees per year from investors. The ETF gained 0.7% on the day and has a Zacks ETF Rank of 3 or ‘Hold’ rating with Medium risk outlook.
iShares 10-20 Year Treasury Bond ETF TLH
Safe haven bonds got a boost as Trump’s agenda seems in jeopardy with TLH gaining 0.5% on the day. The ETF provides exposure to long-term Treasury bonds by tracking the ICE U.S. Treasury 10-20 Year Bond Index. It has a decent level of AUM of $489.3 million and lower average daily volume of 34,000 shares. Expense ratio comes in at 0.15%. Holding 11 securities in its basket, the fund focuses on the top credit rating bonds with average maturity of 13.96 years and effective duration of 10.22 years. TLH has a Zacks ETF Rank of 3 with a High risk outlook.
ETFs to Lose
PowerShares DB US Dollar Bullish Fund UUP
The U.S. dollar is falling and will likely to do so as Trump trade fizzles after the healthcare reform failure. As such, UUP offering exposure to the dollar against a basket of world currencies should be avoided. The fund tracks the performance of the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities. In terms of holdings, UUP allocates nearly 58% in euro while 25% collectively in Japanese yen and British pound. The fund has so far managed an asset base of $531.8 million while sees an average daily volume of 1.4 million shares. It charges 80 bps in annual fees and shed 0.5% on the day. The fund has a Zacks ETF Rank of 3 with Medium risk outlook.
PowerShares Buyback Achievers Portfolio PKW
Trump’s push through tax reforms is also expected to face similar hurdles, making buyback ETFs unattractive. This is because lower corporate taxes would boost companies’ profitability that may drive companies to increase shareholders’ wealth. That being said, PKW dropped 0.4% on doubts over Trump’s agendas. This ETF tracks the NASDAQ US Buyback Achievers Index, which comprises companies that have repurchased 5% or more of their common stock in the trailing 12 months. Holding 227 stocks in its basket, the fund is well spread across components with none accounting for more than 5.71% of assets. Industrials, financials and consumer discretionary are the top three sectors. PKW is one of the popular funds in the niche space, managing an asset base of $1.3 billion and trading in moderate volumes of 71,000 shares a day. It charges a bit higher annual fee of 63 bps.