These ETFs Are Trumping Capitol Hill
The intersection of Wall Street and Capitol Hill can be a perilous one for investors. Regardless of one's political leanings, there is no getting around the fact that there have been some legislative hurdles for investors to contend with over the past several months.
The fiscal cliff was averted, but that gave way to the sequestration debate, a shining example that some U.S. politician, like their European counterparts, do not much like austerity. Through it all, some sector and bond ETFs that theoretically should have been vulnerable to the goings on in Washington, D.C. have shown remarkable fortitude.
How long those good times will last for is anyone's guess, but here are few noteworthy example of ETFs that have performed admirably in the face of political challenges.
iShares Dow Jones US Aerospace & Defense Index Fund (NYSE: ITA)
The iShares Dow Jones US Aerospace & Defense Index Fund and the PowerShares Aerospace & Defense ETF (NYSE: PPA) make for two of the most obvious candidates to have possibly been hurt by the sequestration debate. Remember, the 2013 sequester includes $42.7 billion in defense spending cuts, according to the Congressional Budget Office.
No big deal for these ETFs because they are both higher on a year-to-date basis. Or is it a big deal? "It" being sequestration. At the very least, sequestration is starting to way on ITA and PPA. The former is down almost four percent in the past month while the PowerShares offering is lower by 3.7 percent over the same time. Importantly, both ETFs fell below their 50-day moving averages earlier this week.
PowerShares Build America Bond Portfolio (NYSE: BAB)
As was noted prior to the 2012 presidential election, BAB and comparable ETFs were worth paying attention to for a simple reason. President Obama wants to make the Build America Bonds program permanent. Republicans do not.
Obviously, President Obama won reelection, but that was not the only hurdle for BAB and its rivals to overcome. Sequestration includes reducing the originally promised 35 percent subsidy on Build America Bonds to about 32 percent for U.S. states and cities, Bloomberg reported.
Again, no big deal because BAB, which has a 30-day SEC yield of 4.04 percent, is up almost two percent in the past month. The rival PIMCO Build America Bond ETF (NYSE: BABZ) is higher by nearly three percent over the same time.
iShares Dow Jones U.S. Medical Devices Index Fund (NYSE: IHI)
Lots of folks in the investment world have a hard time admitting when they are wrong. Let us attempt to change that by admitting we predicted IHI and medical device stocks could suffer due to Obamacare. The thesis being that President Obama's health care package includes a punitive tax on medical device companies that is expected to cost tens of thousands of jobs and billions of dollars in lost U.S. GDP growth.
Not surprisingly, IHI reacted adversely immediately following the 2012 election, but the ETF has proceed to gain over seven percent this year. Not a bad performance when considering nothing has been about the medical device tax.
Actually, IHI's run high is borderline stunning when considering Obamacare features a 2.3 percent tax on medical devices, but that tax is on companies' gross sales. To be fair, the Senate is trying to do something about the tax. However, politicians trying to do something and actually being successful are usually two different ballgames. IHI has traded slightly lower in the past month.
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