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More Industry ETFs That Should Like The Trump White House

November 22, 2016 10:27 am
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More Industry ETFs That Should Like The Trump White House

Now two weeks removed from Election Day, it is not a stretch to say one of the safest spaces of all has been the U.S. equity market. Those looking for tactical safer spaces can certainly find them with myriad sector and industry exchange-traded funds with much of that safety coming from financial services ETFs.


The Financial Select Sector SPDR Fund(NYSE: XLF), the largest financial services ETF, is higher by 13.2 percent, with the bulk of that gain being accrued after Election Day. XLF and rival financial services ETFs are rallying, in part, on expectations that President-elect Donald Trump will be more friendly on the regulatory front than his opponent Hillary Clinton and President Barack Obama.

Insurance Stocks And ETFs

Within the financial services space, insurance stocks and ETFs were surprising leaders while the broader sector dithered for much of this year. The theme of insurance strength has continued following Election Day, as highlighted by a November gain of 8.5 percent for the SPDR S&P Insurance ETF (NYSE: KIE). The iShares Dow Jones US Insurance Index ETF (NYSE: IAK) is higher by 9.5 percent this month.

IAK is a cap-weighted fund while KIE is an equal-weight ETF. Much of the market's ebullience toward insurance ETFs is also attributable to a more sanguine regulatory under Trump.

“Broad financial industry deregulation under the Trump administration would ease regulatory burdens for large insurance companies while macroeconomic trends resulting from shifting global and economic policies could have a significant impact on profitability, premium growth and investment performance,” said Fitch Ratings in a note out Monday.

ETFs such as KIE could be further bolstered into year end if the Federal Reserve moves forward with an interest rate increase at its December meeting.

Insurance ETFs' rising rates advantage is tied to the strong dollar. The stronger greenback effects an array of sectors and industry groups, but not insurance companies because U.S.-based insurance providers write the bulk of their policies in the United States.

Insurance is the third-largest industry weight in XLF at 19.3 percent and three insurance stocks are found among the ETF's top 10 holdings.

Dodd-Frank Act

“The potential repeal or amendment of the Dodd-Frank Act is a case in point. The designation of systemically important bank and non-bank financial institutions (SIFIs) falls under the Financial Stability Oversight Council (FSOC).

“SIFIs in the US face higher regulatory standards and three insurers — Prudential Financial Inc (NYSE: PRU), American International Group Inc (NYSE: AIG) and Metlife Inc (NYSE: MET) — were designated as such in 2014. Fitch believes a Trump administration could promote a pullback on insurance SIFI designations via a less inclusive approach following changes in FSOC leadership or via changes to the Dodd-Frank act itself.

“MetLife won a court ruling in March that rescinded its SIFI designation and the Trump administration may choose not to follow through on an appeal,” added Fitch.

Disclosure: Todd Shriber owns shares of XLF.

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