The Trump Trade: Which ETFs Stand to Benefit Most from a Second Donald Trump Presidency?

Energy ETFs

"Common Sense tells us clearly that we must unleash American Energy if we want to destroy Inflation and rapidly bring down prices, build the Greatest Economy in History, revive our Defense Industrial Base, fuel Emerging Industries, and establish the United States as the Manufacturing Superpower of the World. We will DRILL, BABY, DRILL and we will become Energy Independent, and even Dominant again. The United States has more liquid gold under our feet than any other Nation, and it's not even close. The Republican Party will harness that potential to power our future."

This is a no-brainer. Trump and the Republicans have been unabashedly supportive of domestic energy production—specifically oil and gas. In this sector, you actually have several ways to proceed.

If you want a broad focus on upstream, midstream, and downstream assets, there's the duo of the Energy Select Sector SPDR Fund

Both are market cap-weighted indexes, meaning top holdings are dominated by integrated supermajors ExxonMobil and Chevron, which together comprise around 35-40% of both ETFs by weight. XLE focuses only on S&P 500 energy stocks, whereas VDE has more mid and small-cap exposure.

But you can also split it up into different energy sector industries:

• For instance, if you wanted to focus on upstream, there's the equally weighted SPDR S&P Oil & Gas Exploration & Production ETF
  XOP
  -1.6%
• For midstream, you can focus on master limited partnerships and incorporated pipelines via ETFs like the Global X MLP & Energy Infrastructure ETF
  MLPX
  -0.67%
• For downstream, companies that distribute, market for, and support the oil and gas sector via equipment and services can be accessed via the VanEck Oil Services ETF
  OIH
  -3.72%

Defense ETFs

"Common Sense tells us clearly that if we don't have a Strong Military, we won't be able to defend our interests and we will be at the mercy of Hostile Nations. The Policy of the Republican Party must be to ensure that America's Military is the strongest and best-equipped in the World—and that our Government uses that great strength sparingly, and only in clear instances where our National Interests are threatened."

I'm slightly conflicted on this. While Trump and the Republican party would likely be beneficial for domestic military spending, they would also likely cut U.S. military aid to foreign countries given his previous insistence on wanting to pull out of NATO, stop funding for Ukraine, and make other countries pay for U.S. protection.

Still, the defense sector is a likely candidate to experience momentum under Republican and Trump rule, and there's no shortage of options here. We've covered most of these ETFs in a previous edition of "Tony's ETF Buyers Guide," but here's an updated summary:

1. iShares U.S. Aerospace & Defense ETF
   ITA
   +0.44%
   
   The most popular option in this space with $6.24 billion AUM.
   Very liquid with a tight 0.03% bid-ask spread.
   Concentration risk with 18.74% of holdings in GE Aerospace, and significant portions in RTX (14.71%) and Boeing (10.66%) to its market-cap weighted approach favoring larger aerospace and defense contractors.
   0.40% expense ratio.
2. SPDR S&P Aerospace & Defense ETF
   XAR
   -0.42%
   
   Uses a modified equal-weighted index.
   More diversified portfolio with a higher proportion of mid and small-cap aerospace stocks.
   Less emphasis on the largest contractors, suitable for investors seeking growth and potential volatility from smaller companies.
   0.35% expense ratio.
3. Invesco Aerospace & Defense ETF
   PPA
   +0.27%
   
   Provides a more even distribution across large defense companies.
   SPADE index allocates roughly 4-7% each to top holdings like RTX, Lockheed Martin, GE Aerospace, Northrop Grumman, Boeing, and General Dynamics
   Higher expense ratio at 0.58% compared to ITA and XAR, but its historical performance justifies the higher cost to some extent.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.