With the U.S. election results in, the exchange-traded fund (ETF) sector is buzzing about what a Trump presidency might mean for the industry. With investor hopes leaning toward tax reductions, decreased regulation, and more tariffs, there’s curiosity over how these policies could shape ETF selections in 2025. Particular sectors like banking and energy have caught investors’ attention due to their historically strong performance under Republican administrations.
Tom Lydon, former vice chairman of VettaFi and a respected voice in the ETF industry, suggests ETFs related to sectors that generally do well under Republican leadership, such as financials and energy, could see more demand. Reflecting on Trump’s first term, Lydon noted that the energy sector, bolstered by deregulation, saw gains for oil and gas stocks, which in turn benefited energy ETFs. John Davi, CEO of Astoria Portfolio Advisors and an extensive user of ETFs in his strategies, agrees with Lydon’s outlook. He believes that banking, small-cap, industrial, cyclical, and even cryptocurrency ETFs could thrive under Republican policies, especially with Trump in office.
Davi, who oversees various ETFs tied to specific sectors, identified several ETFs that could potentially gain from Trump’s policies. Among them are the Invesco KBW Bank ETF (KBWB), the iShares Russell 2000 ETF (IWM), and the Invesco S&P 500 Equal Weight Industrials Portfolio (RSPN), all representing sectors he believes could benefit. Additionally, he noted that cyclical-focused ETFs like the AXS Astoria Real Assets ETF (PPI) and non-Mag 7 stocks, represented by the Astoria US Equal Weight Quality Kings ETF (ROE), could perform well, alongside the Bitwise Bitcoin ETF (BITB) for those interested in cryptocurrency.
For Matt Bartolini, head of Americas ETF Research at State Street Global Advisors, the banking sector is a standout. The SPDR Regional Bank ETF (KRE) received over $1.3 billion in investor inflows just after the election, a significant show of support indicating 36% of its assets came in one day. Bartolini attributes this interest to the potential for less government regulation. With fewer restrictions on capital controls, banks might enjoy higher returns on equity as balance sheet requirements loosen. At the same time, fiscal policies that could stimulate inflation—while the Federal Reserve considers rate cuts—might lead to steeper yield curves and wider net interest margins, both positives for bank profits.
Despite some recent outflows, Bartolini believes energy ETFs could see a resurgence. Increased permitting for drilling, combined with potential subsidies, might benefit companies linked to oil prices, especially mid- and small-cap oil and gas explorers beyond the major players represented in ETFs like XOP.
The ETF industry may also see a new type of “Trump trade” ETF. Some ETFs already exist that capture Trump-aligned policies, like the Point Bridge America First ETF (MAGA), the iShares US Manufacturing ETF (MADE), and the Tema American Reshoring ETF (RSHO).
Treasury and bond ETFs, however, present a more complex picture. Large bond ETFs have seen substantial inflows in recent weeks, especially the iShares Core U.S. Aggregate Bond ETF (AGG) and the Vanguard Total Bond Market Index Fund ETF (BND). Longer-dated funds like the iShares 20+ Year Treasury Bond ETF (TLT) also saw interest. Yet, funds with shorter-dated securities have had more stable inflows. Davi noted that recent positive U.S. economic data, a strong earnings season, and the Fed’s willingness to reduce rates have made equities more appealing, prompting a shift from Treasury bills to stocks.
Edward Rosenberg, managing director at Texas Capital, described the bond ETF market as “tricky” amid fluctuating bond yields and economic concerns linked to the incoming administration. He pointed out that short bonds may gain modest price increases as the Fed potentially cuts rates, which could benefit money market funds and ultra-short bond ETFs as each rate cut gives these funds a small lift.
Crypto ETFs, on the other hand, are having a moment. Since their introduction in January, crypto ETFs have amassed around $70 billion in assets, making it one of the most successful ETF launches. Options on Bitcoin ETFs, such as the iShares Bitcoin Trust (IBIT), have become available and seen significant inflows. Michael Novogratz, CEO of Galaxy Digital Holdings, anticipates a lighter regulatory environment for crypto under the new administration. He also sees the potential for Congress to shift oversight to the Commodity Futures Trading Commission (CFTC), likely spurring more crypto ETF offerings.
ARK Invest CEO Cathie Wood has also gained from the recent ETF activity. Her ARK Innovation ETF (ARKK), which includes significant holdings in Tesla, Coinbase, and Robinhood, has been a standout during this Bitcoin rally. Wood’s flagship ETF, although still below its 2022 share levels, has seen a slight uptick in recent weeks.
Yet, there are risks tied to the Trump administration’s potential protectionist policies. Davi points out that tariffs and protectionism can drive inflation, putting ETFs focused on international markets like China (iShares MSCI China ETF, MCHI) and Mexico (iShares MSCI Mexico ETF, EWW) at risk. Similarly, consumer discretionary ETFs reliant on imports might face cost pressures.
Rosenberg and Bartolini at State Street both noted that tariffs could harm U.S. industrial ETFs, such as the Vanguard Industrials Index Fund ETF (VIS) and iShares U.S. Industrials ETF (IYJ). However, Bartolini also highlighted that domestic transportation stocks could benefit from Trump’s “reshoring” push, even as larger, globally focused firms may feel the tariff impacts.
Overall, Trump’s presidency is expected to bring a shift in ETF trends. Investors might find opportunities across sectors aligned with Trump’s anticipated pro-business policies, although careful navigation will be needed in certain sectors exposed to international trade.