After a nail-biting election, the results came in last night and America has decided to give four more years to President Obama.
Overall this should be positive for the market as the investors like visibility but there are some sectors that will flourish more than the others during President Obama’s second term. It would thus be prudent for the investors to tilt their portfolios towards those sectors.
Below we look at some of the sectors that are poised to benefit from Obama’s re-election and the related ETFs that the investors can use to gain exposure to those sectors. (Read: 3 Excellent ETFs With More than 4% Yield)
Healthcare sector will benefit since president's Affordable Care Act will increase the healthcare spending. Further, hospitals will no longer have to spend substantial money on providing emergency care to the uninsured. Overall the healthcare providers, service companies and the pharmaceuticals companies stand to benefit.
Health Care Select Sector SPDR Fund (XLV)
XLV tracks the Health Care Select Sector SPDR Index, which includes companies mainly from the pharmaceuticals, healthcare providers and services and healthcare equipment and supplies industries.
The ETF has more than $5.5 billion in assets and trades in heavy volumes. It is however slightly top-heavy with top 10 holdings accounting for more than 60% of the assets.
XLV charges a low expense ratio of 18 basis points while it pays out an attractive dividend yield of 1.93%. (Read: 3 ETFs To Prepare For The Fiscal Cliff)
Obama administration will likely be favorable for the homebuilders as it will continue to work towards helping the delinquent homeowners refinance into lower mortgage rates.
If the current inventory of the foreclosed homes decreases there would be greater demand for new homes and price appreciation. Further while Republicans have been very critical of the Fed’s ultra-low interest rate policy, Obama administration will continue its support for the Fed and the chairman Ben Bernanke. Fed’s QE3 program as well as the near-zero interest rate policy will support the housing market.
Shares Dow Jones US Home Construction Index Fund (ITB)
ITB tracks the Dow Jones U.S. Select Home Construction Index, which measures the performance of the home construction sector of the U.S. equity market. Initialed in May 2006, the fund now has more than $1.5 billion in assets, which are invested in 28 holdings.
Top three holdings are DR Horton (9.56%), Lennar (9.56%) and Pulte Group (8.99%). The fund is heavily exposed to the Home Construction sector (64.3%), followed by Building Materials & Fixtures (17.6%) and Home Improvement Retailers (13.3%).
The ETF charges 47 basis points in annual expenses and currently pays out a yield of 0.35%. We may add that this ETF has been unstoppable (up 78% ytd) since there were clear signs of housing bottoming out. But with rebuilding required as an aftermath of Sandy and Obama’s re-election, this ETF may continue its run in the longer-term as well. (Read: Three ETFs to Watch in Hurricane Sandy's Aftermath)
President Obama supports a green-energy agenda and has reiterated his support for “development of cleaner and more energy-efficient technology”. His administration wants to extend the tax credits for clean energy companies that are set to expire at the end of this year.
Obama has spoken several times about his commitment to tackle the issue of climate change and to protect the environment. In his convention speech, the President reiterated commitment towards continued investment in clean coal, as well as wind and solar energy.
PowerShares Cleantech Portfolio (PZD)
PZD tracks the Cleantech Index and invests at least 90% of its total assets in stocks of cleantech companies, from a broad range of industry sectors. The ETF is well diversified with 60 holdings, with the top holdings constituting less than 30% of total assets.
PZD charges 67 basis points to the investors for annual expenses and currently pays out a decent yield of 1.67%. Launched in October 2006, the fund has so far attracted $68.2 million in assets under management.
Obama has been advocating broadband expansion and he had recently signed an executive order making broadband construction faster and cheaper. Earlier he had launched the National Broadband Plan, with a goal of achieving 90% broadband adoption across America by 2020.
While his administration had failed to meet some of the interim goals for the project earlier, there may be a greater push towards achieving the goals during his second term as the President.
Vanguard Telecom ETF (VOX)
VOX seeks to replicate the price and performance of the MSCI US Investable Market Telecommunication Services 25/50 Index.
With holdings of 35 stocks and AUM of $503.4 million, the product allocates the majority of its assets (nearly 71%) to the top 10 firms. AT&T, Verizon and Sprint Nextel (S) take the top spots in the basket and make up for a combined 50% share.
The ETF is the low cost choice in the telecom space with an expense ratio of 0.19% and tight bid-ask spreads. Further, the fund generated excellent returns of 15.4% year-to-date and has a solid dividend yield of 2.79%.