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Personal Finance

This ETF Works Whether Clinton or Trump Wins

Hint: It has nothing to do with their policies.

Brace yourself for financial advice on which presidential outcome will reward which investments. You may be advised, for example, that an exchange-traded fund focused on alternative energy, health care, or women in leadership will flourish under a President Clinton, while an aerospace and defense, real estate, or oil or coal ETF will be trotted out as a smart play for a Trump presidency.

It's fun, for a parlor game. 

Now go back to early 2009, when President Barrack Obama was being sworn in. Investing in alternative energy was the best way to play an Obama administration, according to articles written at the time. But a leading ETF in this area, the VanEck Vectors Global Alternative Energy ETF (GRX), has been a dud, losing money since Obama was elected.

Meanwhile, two ETFs in areas that pundits traditionally expect to benefit more from a Republican president—the SPDR S&P Bank ETF (KBE) and the iShares U.S. Aerospace & Defense ETF (ITA)—gained. The chart shows the performance of all three ETFs from the inauguration to the present.

True, many people also predicted that health-care ETFs would rally under Obama, and they have. The Health Care Select Sector SPDR Fund (XLV) has returned 203 percent since he was first elected.

Overall, though, specific stock market segments aren’t as linked to who's in the White House in real life as they are in the headlines. There are just too many variables in the mix—such little things as underlying economic fundamentals, the dark arts of the Federal Reserve, and the doings of the rest of the world.

As politics does its crazy dance over the next few months, it's clear that suggesting you buy and hold the Vanguard S&P 500 ETF (VOO), as Warren Buffett recommends, won't make us the life of the party. But it's probably the best way for many people to invest, regardless of who wins in November. The S&P 500 index has returned an average of 10.8 percent a year, from Ronald Reagan through Obama.

The bottom line on ETFs and presidents: Being partisan with your portfolio doesn't pay. A simple, low-cost, diversified, large-cap equity ETF is the average investor's best bet. 

Eric Balchunas is an exchange-traded-fund analyst at Bloomberg. This piece was edited by Bloomberg News. 

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