How The Next President Could Affect Commodities ETFs

Markets Benzinga

Despite all the commotion about this being a good year for commodities, the iShares S&P GSCI Commodity-Indexed (ETF) (GSG) is flat year-to-date. That condition is unlikely to persist after the results of Tuesday's presidential election start trickling in.

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The Climate

As has been widely documented, gold and perhaps some other precious metals are believed to me the only potential near-term beneficiaries of Republican challenger Donald Trump claiming the White House. A legitimate case can also be made that given her harsh rhetoric aimed at the coal industry and the Democrats' lengthy history of hostility toward the oil industry, the oil patch does not want to see Democratic nominee Hillary Clinton win the presidency.

History can be instructive for investors looking to make commodities bets following the election. In fact, gold investors might just want Clinton to win whether they know it or not.

It's Not That Simple

While volatility and fear generally have supported gold around election uncertainty (in fact, this year through Oct. gold in the index is posting its 6th best year ever going back to 1979 (+19.3 percent) and is on pace for its best year since 2011,) gold does significantly better under the historical Democratic presidencies, adding 24.3 percent on average in Democratic terms versus Republican ones since 1978, according to a recent note by S&P Dow Jones Indices.

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GSG tracks the S&P GSCI Total Return Index, which offers investors exposure to energy, industrial and precious metals, agricultural, and livestock commodities. Again, history suggests mixed performances for various commodities when Republicans control the White House.

Like gold, most commodities do better on average under Democratic rule, but the majority of highs and lows for commodities are under the Republican presidencies. Of the 24 commodities, 14 have had their best performance and 18 have had their worst performance with Republican presidents. However, 17 single commodities have had better performance on average under Democratic Presidents, noted S&P Dow Jones Indices.

Some agricultural commodities, namely corn, wheat, Kansas wheat and soybeans, perform better when Republicans occupy the White House.

So, it could be good news for the PowerShares DB Agriculture Fund (DBA) if Trump wins, as that ETF allocates nearly 35 percent of its combined weight to corn, soybeans and wheat.

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