Published September 25, 2012
With Election Day less than two months away and expectations still high that this election will be a nail-biter, investors are probably wondering what stocks and sectors will be most affected by the results. While the S&P 500 has performed better under Democratic administrations, according to S&P data, that does not mean all sectors will react the same if President Obama is reelected.
In a research note, S&P Capital IQ highlights a few ETFs that offer investors avenues to play the outcome of this year's election. Predictably, health care was one sector to make the list.
"Health care is likely the most obvious sector that would benefit from President Obama holding on, as health care reform would proceed unabated," S&P Capital IQ said in the note. "Most sub-industries have been working toward implementing the law. The pharmaceutical industry would proceed with its plan to pay upfront fees in increased Medicaid rebates and Medicaid discounts with the promise of expanding the insured market come 2014. We also see generic firms and drug distributors benefiting from the government's push toward lower-cost drugs in the newly expanded patient populations. Meanwhile, hospitals should benefit from a sharp drop in total uncompensated care with an increase in insured patients."
S&P rates the Health Care Select Sector SPDR (XLV), the largest health care ETF, Overweight. Home to $4.85 billion in assets under management, XLV has jumped 16.2 percent year-to-date. Dow components Johnson & Johnson (JNJ), Pfizer (PFE) and Merck (MRK) combine for a third of XLV's weight.
S&P said telecommunications is another sector that could benefit from an Obama victory.
"President Obama has been supportive of broadband expansion, through government subsidies, enticing carriers to build out their networks. In addition, the Federal Communications Commission's chairman has been a proponent of moving wireless spectrum from television broadcasters to telecom carriers. If Governor Romney wins, a new chairman would take over and could scuttle these efforts," S&P said.
The Vanguard Telecom Services ETF (VOX), which has surged 21.5 percent year-to-date, received a Marketweight rating from S&P. Dow components Verizon (VZ) and AT&T (T) combined for 45 percent of VOX's weight at the end of the second quarter, according to Vanguard data.
Not surprisingly, S&P sees the financial services sector as being a winner under a possible Romney Administration.
"S&P Capital IQ believes that the legislation created a lot of leeway, allowing less stringent provisions. Fair Lending and the Community Reinvestment Act are major initiatives of the current Department of Justice, and we think there would be less pressure on the banking industry from a Romney Administration," the firm said in the note.
S&P recommends playing a possible Romney victory with the iShares S&P Global Financials Sector Index Fund (IXG). The iShares S&P Global Financials Sector Index Fund is home to almost 220 stocks and top-10 holdings include Wells-Fargo (WFC), J.P. Morgan Chase (JPM), Bank of America (BAC) and Banco Santander (SAN).
Due to Obama's support of organized labor, S&P said the iShares Dow Jones Transportation Average Index Fund (IYT) could be another winner under a Romney Administration because Obama favors making it easy for workers to organize. S&P rates the iShares Dow Jones Transportation Average Index Fund Marketweight.
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