ETF, MLP Set To Move On GOP Victory
The Republicans pulled off a historic night in the mid-term elections as they took over the Senate and won several gubernatorial swing states. The Senate is the most important outcome of mid-term elections and it has several sectors set to take advantage of the potential new policies of the Republican Party.
Master Limited Partnerships
MLPs, or master limited partnerships, might receive a nice benefit from a Republican Congress, as it could very well end up with President Barack Obama approving the Keystone XL pipeline. The project has been a controversial topic under his administration since they received its proposal from Trans Canada Corporation (USA) six years ago.
The pipeline would stretch 1,179 miles, starting in Hardisty, Alberta, and going to Steele City, Kansas, effectively connecting oil refineries in Canada to their distribution points on the Gulf of Mexico. A project of this magnitude would greatly benefit MLPs across the country, as most of them are related to pipeline ownership in the United States and Canada.
Medical Device Sector
Another sector that might benefit from the Republican victory is the medical device sector. A Republican Senate might attempt to repeal the excise tax imposed on medical devices that was instituted by President Obama's Affordable Care Act.
The lifting of this tax would allow medical device companies to increase their margins, their bottom line and return more to shareholders. Currently medical device manufacturers pay a 2.3 percent on the sale of their products. Republicans have been quite vocal about alleviating this tax.
Below are a MLP and a medical device ETF that are positioned well if the Republicans are able to make any headway with the above-mentioned issues.
iShares Dow Jones US Medical Dev. (ETF)
The iShares Dow Jones US Medical Dev. (ETF) (NYSE: IHI) tracks 50 publicly traded companies in the United States that manufacture and distribute medical devices. The top individual holdings of the ETF include:
- Medtronic, Inc. with a 10.6-percent holding
- Abbott Laboratories making up 10.4 percent
- Thermo Fisher Scientific Inc. coming in at 7.8 percent
IHI is up 21 percent over the last 12 months and 12 percent over the last six months. The medical device ETF has an expense ratio of 0.43 percent.
The Alerian MLP (NYSE: AMLP) follows 26 MLPs that are publicly traded partnerships engaged in the transportation, storage and processing of minerals and natural resources. The top individual holdings include:
- Kinder Morgan Energy Partners LP making up 9.8 percent of the fund
- Enterprise Products Partners L.P. at 9.1 percent
- Energy Transfer Partners LP with an 8.3 percent holding
AMLP is up 1.5 percent over the last 12 months and is about even over the last six months. Over the last three weeks, the ETF has rallied 6 percent after a large sell-off in the beginning of October. Another factor for AMLP is the 5.8 percent dividend yield that is even more attractive with the 10-year Treasury yielding 2.36 percent.
It is not certain how each sector will be affected by the 2014 mid-term election cycle. It is fair to say that the above sectors, as well as the overall market, may see some increased buying in the months ahead based on historical data.
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