Market Overview

Busting Another Election Year ETF Myth

Busting Another Election Year ETF Myth

In this space on Monday, we highlighted one of the most ridiculous election year myths pertaining to exchange-traded funds. The myth being: A victory by Democrat Hillary Clinton would be a boon for alternative energy ETFs.

As was noted, the current bull market performances of alternative energy ETFs, such as the Guggenheim Solar ETF (NYSE: TAN), have been less than inspiring.

Well, there is another election year ETF myth that needs to be addressed before investors head to the polls in November. Before getting to that myth, however, remember what follows is not an endorsement of any presidential candidate. Nor is it a degradation of those candidates. For those thirsting for overt political bias where it has no place, other outlets welcome your readership.

Related Link: How Trump Could Cause A Recession, Even If He Loses The Election

The Other Danger

The other election year myth ETF investors need to be aware of is that a Clinton victory would be efficacious for healthcare funds.

No, there is no refuting the healthcare sector's leadership during the current bull market, and, love it or hate, the Affordable Care Act ("Obamacare") has had something to do with that.

The Health Care SPDR (ETF) (NYSE: XLV) has been one of the best-performing traditional sector ETFs since President Barack Obama took office in early 2009. Every year since 2010 has seen multiple healthcare ETFs rank among the top 10 sector ETFs on an annual basis.

XLV is down 2.7 percent year-to-date and it would be false to think the struggles incurred by it and rival healthcare ETFs have nothing to do with markets pricing in a Clinton victory. Go back to September 21, 2015. That is the day Clinton sent her now infamous tweet about drug prices.

Since then, the iShares Nasdaq Biotechnology Index (ETF)(NASDAQ: IBB), the largest biotechnology ETF, is down 23.1 percent. That is more than enough to put the fund in a bear market. Oh yeah, biotech stocks usually account for 20 percent or more of diversified healthcare ETFs' weights. For example, biotech currently represents nearly 22 percent of XLV's weight, making it the second-largest industry weight in the ETF.

Additionally, the Obama Administration has been cracking down on inversion deals, an effort that has seen some mega healthcare mergers and acquisitions activity scuttled as a result. It is not a stretch to assume that Clinton would carry on that policy, which would damp large-scale healthcare mergers and acquisitions — although M&A has been a significant driver of the healthcare sector's returns over the past several years.

Sure, it is possible that XLV, IBB and rival healthcare ETFs will thrive if Clinton is the next president. However, these issues, and all investing strategies, deserve more attention and thorough investigations instead of being favored or ignored simply because of political hype; trade responsibly.


Related Articles (XLV + IBB)

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