With the elections over, the ETF world is buzzing about how the Trump presidency will affect the business. How are hopes for tax cuts, fewer regulations and more tariffs influencing what ETFs investors will be buying in 2025? Two corners of the market receiving particular attention are banks and energy. “ETFs tied to sectors that typically thrive under Republican policies, such as financials and energy, could see increased investor demand,” Tom Lydon, former vice chairman of VettaFi and an influential figure in the ETF community, said in a recent post. “For example, during Trump’s previous administration, deregulation in the energy sector boosted oil and gas stocks, benefiting energy ETFs.” John Davi, who uses ETFs extensively as CEO of Astoria Portfolio Advisors, agrees. “We think the biggest beneficiaries of a red sweep will be in banks, small caps, industrial (cyclicals in general), crypto and the non Mag 7 stocks,” he told CNBC. Potential Trump ETF beneficiaries Gavi, who also manages several ETFs tied to specific sectors, cited ETFs specializing in banks ( Invesco KBW Bank ETF , or KBWB), smallcaps (iShares Russell 2000 ETF , or IWM), industrials ( Invesco S & P 500 Equal Weight Industrials Portfolio , or RSPN), cyclicals ( AXS Astoria Real Assets ETF , or PPI), Non Mag 7 stocks ( Astoria US Equal Weight Quality Kings ETF , or ROE) and bitcoin ( Bitwise Bitcoin ETF , or BITB), as likely beneficiaries of Trump policies. Matt Bartolini, head of Americas ETF Research at State Street Global Advisors, is especially positive on banks. The SPDR Regional Bank ETF (KRE) received more than $1.3 billion of new investor cash the day after the election, meaning 36% of the fund’s current assets came in on a single day. Bartolini said in an an email that the prospect of diminished government oversight is a key driver. “Lesser regulation on capital controls may increase return on equity for banks, as they may have more relaxed balance sheets in terms of capital hold backs,” he said. “At the same time, the other fiscal policies suggest may be inflationary at a time when the Fed is seeking to cut rates. This could lead to steeper yield curves and wider net interest margins, another positive for [profit] growth.” Though energy ETFs have had outflows this year, that could reverse. “With the potential for increased permitting around drilling, among other supportive actions and potential subsidies, the firms most exposed to the spot price of oil and its impact on their earnings may benefit,” Bartolini noted. “This means broad exposure to oil and gas explorers and producers that feature a mid-and small-cap bias beyond the bellwether giants ( XOP ).” Don’t be surprised to see the ETF industry quickly wrap perceived “Trump trades” into a single ETF; several flavor already exist, including the Point Bridge America First ETF (MAGA), the iShares US Manufacturing ETF (MADE) and the Tema American Reshoring ETF (RSHO). Treasury ETFs can be “tricky” One area where there is disagreement is Treasuries and bonds in general. There have been notable inflows into large bond ETFs in the past month, particularly the iShares Core U.S. Aggregate Bond ETF (AGG) and Vanguard Total Bond Market Index Fund ETF (BND), two of the world’s largest bond ETFs, and longer-term funds like iShares 20+ Year Treasury Bond ETF (TLT). However, inflows have been flattish in funds with shorter-dated securities. “We have been pretty vocal on buying more equities and moving out of [Treasury] bills,” Gavi said, citing stronger U.S. economic data, a good U.S. earnings season and the Fed’s willingness to reduce interest rates to further stimulate an already healthy economy. Edward Rosenberg, managing director and head of ETFs at Texas Capital, described the fixed income ETF market as “tricky.” Based on recent moves in fixed income, “the newly-elected president is creating some worry in the bond market. However, with the fed cutting rates causing short bonds to get a very small bump in price, money markets and the ultra-short bond ETFs could benefit because they could see continual price bumps with each” rate reduction. Crypto ETFS having big year and getting bigger Since launching in January, crypto ETFs have attracted roughly $70 billion in assets, one of the most successful ETF launches ever. Options have been available since October. Bitcoin ETFs including the iShares Bitcoin Trust (IBIT), the largest bitcoin ETF by assets under management, have seen significant inflows since October. SEC Chair Gary Gensler has insisted most crypto currencies are securities that fall under the purview of the SEC, but that may change under a new regime. There will likely be a bigger push for broad legislation in Congress that would give much of the power to regulate crypto to the Commodity Futures Trading Commission instead of the SEC, and more crypto ETFs are likely. “We have gone through four years of a very very difficult regulatory environment, and that is all about to change,” Michael Novogratz, founder and CEO of Galaxy Digital Holdings, a crypto investment firm, said on CNBC last week. Also more likely: a downtick in rulemaking and enforcement cases against crypto companies. Cathie Wood is back One big winner so far has been ARK Invest CEO Cathie Wood. Todd Sohn, head of ETFs at Strategas, called Wood’s ARK Innovation ETF (ARKK) a “Trump-like proxy.” ARKK 1M mountain ARK Innovation ETF, 1 month Not only is Tesla her largest holding, but she has also been a beneficiary of the bitcoin rally, since a good part of ARK Innovation is held in Coinbase and Robinhood, which stand to gain from any bitcoin rally. ARKK Innovation ETF (ARKK) (largest holdings) Tesla 14.2% Roku 9.4% Coinbase 8.9% Roblox 6.7% Palantir 5.2% Robinhood 4.8% What’s still not clear is if Wood can regain the adherents she has lost. Shares outstanding in the flagship ARK Fund have gone from to roughly 120 million today from 208 million at the end of 2022, with only a modest uptick in the past week. Downside risks The downside risks are that “tariffs and protectionism are inflationary,” Davi said. That could leave ETFs that track exposure to international markets like China ( iShares MSCI China ETF , or MCHI) and Mexico ( iShares MSCI Mexico ETF , or EWW) vulnerable to selloffs. It could also expose consumer discretionary ETFs ( Consumer Discretionary Select Sector SPDR Fund , or XLY) which rely on imported goods, facing potentially higher costs. Rosenberg at Texas Capital acknowledges that certain ETF sectors, like industrials ( Vanguard Industrials Index Fund ETF , or VIS; iShares U.S. Industrials ETF , or IYJ), “could be hurt by more tariffs.” State Street’s Bartolini also acknowledges industrials could be hurt by increased tariffs but notes they “are cyclical and pro-growth. Large U.S. international trade firms would be most impacted. Domestic transportation stocks that can benefit from the re-shoring wave could benefit, however.” Note: Matt Bartolini, Head of Americas ETF Research at State Street Global Advisors, and John Davi, founder and CEO of Astoria Portfolio Advisors, will be guests on ETF Edge today at 1:15 PM ET. ETFEdge.CNBC.com.
