Some sectors and the relevant and exchange traded funds (ETFs) can be negatively correlated to election year posturing. For example, healthcare and biotech ETFs have come under some pressure as some presidential candidates have taken aim at soaring drug costs.
On the other hand, there are some ETFs that are being helped by campaign rhetoric, including aerospace and defense funds such as the SPDR S&P Aerospace & Defense ETF (XAR) and the PowerShares Aerospace & Defense Portfolio (PPA) . XAR and PPA are up an average of 15.5% over the past 90 days as presidential hopefuls step up defense talk.
XAR, an equal-weight ETF, is home to venerable defense names such as Dow component Boeing (BA) and Lockheed Martin (LMT). The aerospace-defense group has a beta of 1.9 to U.S. GDP growth compare to 1.7% for the S&P 500.
Related: National Security Concerns Fuel Aerospace & Defense ETFs
“Since the beginning of election season, candidates on both sides have spoken extensively about the need to strengthen the American military. Presumptive Republican presidential candidate Donald Trump has promised that ‘we will spend what we need to rebuild our military’ because ‘our military dominance must be unquestioned.’ Hillary Clinton pledges to ‘ensure the United States maintains the best-trained, best-equipped, and strongest military the world has ever known,’ according to her campaign’s website,” reports CNBC.
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PPA holds 50 stocks “involved in the development, manufacturing, operations and support of US defense, homeland security and aerospace operations,” according to PowerShares.
Although the aerospace and defense industry is perceived as being beholden to Uncle Sam’s whims, the allure of late-cycle sectors, including industrials, in a rising rate environment remains in place. Industrials perform well when interest rates rise because rising rates can go hand-in-hand with economic growth.
Related: Government Programs Send Aerospace ETFs Flying
In addition to political rhetoric, potential catalysts for aerospace ETFs include include, renewed airline pricing power evidenced by higher ticket prices, and more fees paid per traveler, increased airline profitability, new aircraft program launches and continued demand for aircraft models and technology.
“The way I think investors are thinking about this election is infrastructure [spending] is going to go up no matter who gets elected. Defense is going up no matter who gets elected,” Daniel Clifton, head of policy research at Strategas, said in a recent interview with CNBC.com.