A Long/Short ETF For The Election Outcome

Markets Benzinga

With market volatility here on the back of Donald Trump's 2016 presidential election victory, the world of exchange-traded funds is here to oblige investor concerns. That includes long/short funds such as the WisdomTree Dynamic Long/Short U.S. Equity Fund (DYLS).

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The WisdomTree Dynamic Long/Short U.S. Equity Fund, as its name implies, features both long and short equity positions. That new ETF's long positions are comprised of 100 large- and mid-cap companies that meet certain growth and value criteria. DYLS weights those according to their volatility traits. The new ETF's short equity positions include the largest 500 U.S. companies, weighted by market capitalization, designed to act as a market risk hedge, according to WisdomTree.

Market Neutrality

Currently, DYLS and its underlying index are market neutral, a safe position to take given the potential for equity market volatility following this election. Gold and not much else have been cited as possible beneficiaries of Republican Donald Trump emerging victorious.

Near-Term Safe Haven

Again, DYLS could prove to be an especially useful idea over the near-term because some investors believe there are limited scenarios in which stocks stage a legitimate post-election rally.

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Betting odds through late last week still suggested the more probable outcome was that Hillary Clinton would win and that the House would stay in Republican hands, said WisdomTree Chief Investment Strategist Luciano Siracusano in a recent note. This is, I believe, the only scenario in which stocks rally between now and the end of the year. Put another way, a President-elect Clinton could provide some post-election relief coupled with expectations that not much will change in a gridlocked Washington.

The quality or growth indicator derived from trends in operation margins (operating income divided by sales), net margins (net income dividend by sales) and ratios of operating cash flow to operating income moved from positive in September to negative for the month of November. The deterioration in fundamentals was great enough to generate a 0 percent net equity exposure signal, added Siracusano.

Image Credit: By Gage Skidmore from Peoria, AZ, United States of America (Donald Trump) [CC BY-SA 2.0], via Wikimedia Commons

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