Trump’s Surprise Election Ignites Investor Interest in Equity ETFs

On the heels of Donald Trump’s upset win to become the next president of the United States, money flowed into equity exchange-traded funds (ETFs) at a record-setting pace. For the fund-flows week ended November 16, equity ETFs took in $27.0 billion of net new money—their highest one-week increase since Thomson Reuters Lipper began tracking the data in 1996. The lion’s share (+$26.0 billion) of this net inflow was concentrated in five specific Lipper fund classifications that can be tied directly to Trump’s win and his campaign platform.

ETFs in Lipper’s S&P 500 Index Funds (+$8.5 billion), Financial Services Funds (+$6.5 billion), Small-Cap Core Funds (+$5.8 billion), Health/Biotechnology Funds (+$2.7 billion), and Industrials Funds (+$2.5 billion) categories were responsible for almost all the past week’s increase. The positive flows were so extreme for these peer groups that they represented the largest weekly net inflows on record for three of them (Financial Services Funds, Health/Biotechnology Funds, and Industrials Funds) and the second largest for another (Small-Cap Core Funds).

One of the main pillars of Trump’s campaign platform was a reduction in the mountain of rules and regulations that have been placed on U.S. companies. These regulations were enacted in an effort to protect the environment and workers but came at the expense of growth. The rules hindered small-cap firms more than most, since small-caps typically do not have the resources to incur the extra costs (legal, client, etc.) associated with new regulations. So, it was not surprising that flows into Small-Cap Core Funds went through the roof for the week after Trump’s victory. S&P 500 Index Funds also participated in this windfall, since less regulation will be a plus to the growth potential of all U.S. companies.

Trump has also promised to invest heavily in rebuilding the nation’s infrastructure. That will have a direct positive impact on construction stocks and the industrial sector, initiating the record-setting inflows for ETFs in the Industrials Funds category. Industrial Select Sector SPDR Fund (XLI, +$1.7 billion) individually took in the majority of the net new money for the classification for the week. Healthcare stocks took strength in the new administration’s pledge to right the ship in regard to Obamacare. The inflows for the week for healthcare ETFs were paced by Health Care Select Sector SPDR Fund (XLV, $1.1 billion). Stocks in the financial sector rallied, based on rising bond yields (the yield on the ten-year U.S. Treasury note rose to 2.22% from 1.86% post-election) as well as the expectation of the benefits they will receive from less regulation. Financial Select Sector SPDR (XLF, +$5.2 billion) accounted for most of the net inflows into financial services ETFs for the week.