With less than 24 hours until the U.S. Presidential election begins, anticipation about the results, and the impact on the economy are in full focus.
Last week's runup in volatility in U.S. equities is only adding to the anticipation. The uncertainty surrounding the election, as well as questions regarding the global economic recovery given the upswing in COVID cases, are key factors in the rise of volatility.
Seasoned investors realize election volatility is mostly short-term noise whereas well-managed companies that produce stable revenue are likely to do well regardless of party politics.
Research released in 2018 by the Board of Governors of the Federal Reserve System examined why the S&P 500 index moved higher from the November 2016 presidential election through the end of 2017.
Economics professors Olivier Blanchard and Robert M. Solow, who led the study, agreed more clarity about economic policy helped boost the markets, explaining:
"A bit more than half of the increase in the aggregate U.S. stock prices from the presidential election to the end of 2017 can be attributed to higher actual and expected dividends. A general improvement in economic activity and a decrease in economic policy uncertainty around the world—contrary to what was forecast before the U.S. election—were the main factors behind the stock market increase."
With this in mind, here is an ETF on track to benefit over the long-term no matter the election results:
SPDR S&P Internet ETF
- Current Price: $116.86
- 52-Week Range: $53.49 - $131.56
- Dividend Yield: 1.15%
- Expense Ratio: 0.35%
The SPDR® S&P Internet ETF (NYSE:XWEB) provides exposure to businesses that operate in internet services, infrastructure, e-commerce and interactive media. The fund started trading in 2016 and has close to $48 million under management.
XWEB, which has 46 holdings, tracks the S&P Internet Select Industry Index. As no firm has a weighting over 4%, no single stock can affect the fund's priceon its own. It is also not dominated by titans such as Alphabet (NASDAQ:GOOGL), (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) or Facebook (NASDAQ:FB).
Several of the top names in the fund include the image sharing and social media platform Pinterest (NYSE:PINS), which recently announced robust Q3 results as revenue climbed 58% year-over-year to $443 million, multimedia messaging app Snap (NYSE:SNAP) whose Q3 revenue also increased 52% to $679 million, sell-side advertising firm Magnite (NASDAQ:MGNI), online personal styling service Stitch Fix (NASDAQ:SFIX) and e-commerce auto parts provider Carparts.com (NASDAQ:PRTS).
Since the start of the year, XWEB is up over 43%. It hit an all-time high of $131.56 Oct. 14. Understandably, the stay-at-home, work-from-home trend has provided tailwinds for many internet businesses.
As a result of the recent run-up in price, its valuation is extended. Trailing P/E and P/B ratios stand at 37.69 and 5.01. Those investors who track short-term technical charts should be aware that various indicators urge caution. In the coming weeks, a fall toward the $110 level or even below looks likely, providing long-term investors an opportunity to buy the fund.
Bottom Line
Many are understandably nervous about the effects of tomorrow's election on their investment portfolio. However, it is unlikely to have a lasting impact on the operations of robust companies or secular market trends, so those with a diversified portfolio shouldn't be concerned.
Another ETF to consider for the long-run could be the Invesco S&P 500 Equal Weight Consumer Staples ETF (NYSE:RHS), which gives access to consumer staples companies. The sector is typically regarded as a defensive play in volatile times. RHS has 32 holdings. It has been trading since 2006.
The top names in the fund include Costco Wholesale (NASDAQ:COST), Colgate-Palmolive (NYSE:CL), Campbell Soup (NYSE:CPB), Estee Lauder (NYSE:EL), Conagra Brands (NYSE:CAG), and Walmart (NYSE:WMT).
In addition to robust U.S. operations, most companies in the fund also have significant exposure to overseas markets. The second wave of the pandemic is leading to another round of lockdowns across the globe. Amid such uncertainty, consumer staples companies are expected to perform well. The current dividend yield of 2.2% could also appeal to those in search of passive income.