ETF Insight: Trump vs Biden – how their policies could affect ETFs

Alexandra Cain


With Joe Biden having all but claimed the Democratic nomination, and the US election cycle moving from primaries to general, many are wondering what may be thrown Wall Street’s way in November.

With Biden and Trump, Wall Street has two business-friendly candidates, however, their proposed policies are quite different. We take a look at how ETFs could be affected by this year’s election.

Global warming

A big difference between the Democrats and Republicans is their position on global warming. One of Biden’s core policies is curbing greenhouse gas emissions and shifting to clean energy.

While common sense says Democrats are good for clean energy and bad for oil and coal, the history is in fact quite mixed, with studies finding there is no obvious boost for clean energy businesses when Democrats occupy the White House.

Brett Taggart, managing director of financial advice firm Bell Partners, says it is a good sign for environmental, social and governance (ESG) ETFs if Biden wins, as it should encourage ETF providers to build more ESG funds.

“You could see more complicated structures around ESG as index providers cater to heightened demand from retail investors,” Taggart suggests.

“We would likely see a larger suite of ESG products and ETFs that target individual environment, social or governance themes. The universe of different products could become very complex.”

In contrast, Trump is a global warming denier who defunded clean energy initiatives. Therefore, if he is re-elected, his policies are unlikely to support investment in clean energy.

Despite his stance, the public is hungry for more responsible investments. Even if public policy will not encourage a shift to green energy, retail investors are still likely to seek out products with an ESG bent.

Additionally, BetaShares’ chief economist David Bassanese notes corporate America is becoming more environment-minded, with or without Trump.

Recent natural disasters have reinforced this trend, he says: “This is creating renewed impetus for investment in renewable energy.”

Infrastructure spending

US bridges, ports, roads and rail are badly in need of repair. Biden says he plans to rebuild infrastructure if he wins the election.

While infrastructure spending was a pillar of President Trump's 2016 election bid, he never delivered. He chose instead to cut taxes on corporations and the rich, which blew out deficits and created a hostile congress.

“As Mike Tyson said, ‘everyone has a plan until they get punched in the face’. In this case, the punch is the challenge of getting policy through congress and finding a way to fund infrastructure projects. Biden probably has as good a chance of executing this promise as anyone,” Patrick Garrett, robo adviser Six Park’s co-founder and co-chief executive officer, says.

Bassanese notes any new infrastructure spending would be targeted at fixing existing, crumbling assets. “It is likely the government would contract private companies for these infrastructure projects, which would boost construction, rather than businesses that operate existing infrastructure assets.”

This could benefit industrial and infrastructure ETFs. But the impact on infrastructure ETFs will come down to Trump or Biden’s ability to finance rebuilding infrastructure and secure Congress’s support.

Working-class America and real estate

Furthermore, Biden says if he is elected he will make working-class Americans richer. This is a group that does not always attend university and often earns hourly wages. Their fate is important for some parts of the economy as they help make up much demand. “They do the most spending because they are a far bigger population than the wealthy,” Taggart explains.

The sector of the economy that benefits most from a strong working class is usually thought to be real estate – as working-class Americans often rent rather than own their properties. As such, when working-class America does well, property developers and landlords can sell them new developments or charge them higher rents.

It is for this reason that the Democrats, with their love of higher wages and stimulus, have received strong support from the real estate sector. And indeed, in 2020, the real estate industry has given more money to Democrats thus far.

However, Biden is yet to say how he is going to give working-class Americans more money. Presumably, it will require tax cuts or a higher minimum wage, neither of which he has clearly committed to.

Trump – himself a real estate man, ironically – pursued a similar theme with his ‘Make America great again’ rhetoric; his support among white working-class voters remains high. While wages have not grown under Trump, unemployment has fallen. (However, this seems to have reversed recently thanks to the coronavirus).

Should Biden successfully boost wages, real estate – expressed through REIT and construction ETFs – would be one to watch.

A week is a long time in politics

Most investors prefer to avoid making outright political bets. They think that political investing often fails, as politics can so often be unpredictable.

And indeed, with the success of Brexit, the election of Trump, and the against-all-odds re-election of Scott Morrison in Australia, there has been a lot of political unpredictability of late.

For reasons such as this, it is really too early for investors to alter their portfolio exposure based on who may be the next US president, Garrett says.

“Also, what a candidate claims as policy priorities while campaigning can be very different to what is feasibly implemented if the candidate is elected.

“Most major policies require congressional approval,” Garrett continues. “So trying to make heads or tails of what Trump or Biden might actually be able to implement is a guessing game at this point.”

The President’s influence over economic and market conditions is also tempered by the US Federal Reserve’s influence on monetary policy, which can be as unpredictable as politics.

With the coronavirus bringing unprecedented disruption, November feels like a long way away. And, while the book-keepers still think Trump will win, only a fool pretends to know the future in straitened times like ours.

ETF Insight is a series brought to you by ETF Stream. Each week, we shine a light on the key issues from across the ETF industry, analysing and interpreting the latest trends in the space. For last week’s insight, click here.


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