If you have been paying attention to financial news in this post-Presidential environment you have almost certainly encountered multiple articles on how to use Exchange Traded Funds (ETFs) to profit from the Trump election. While the intent of these articles is good, they leave the average investor with little to no actionable information. Why? Because the ETFs most commonly mentioned that enable people to take advantage of the opportunities are volatile investments that have no place in today’s traditional buy-and-hold portfolios.
In contrast, users of NAOI Dynamic Investments (DIs) can put this information to good use immediately with virtually no risk. Let’s take a look at how:
The Areas of Interest and an Example ETF for Each
Following are several of the main areas that the pundits believe will thrive under a Trump administration. With each area I show an ETF that can enable people to invest in it.
Defense – Trump has promised to rebuild a seriously depleted military. Of course this means that suppliers of military and defense products and services should benefit. One ETF that tracks an index consisting of defense contractors is XAR – the S&P Aerospace and Defense ETF with holdings such as Boeing, Lockheed, General Dynamics and Northrup Grumman among others.
Energy – Trump has promised to reduce the regulatory nightmare that US energy companies have to deal with today. This should enable the industry to thrive. An ETF related to this area of the market is VDE – the Vanguard Energy ETF an investment that tracks an index of companies covering a broad swath of the industry, from oil-rig builders and drill-equipment makers to oil refiners and transportation companies.
Infrastructure – Trump has promised to rebuild the nation’s infrastructure. An ETF that tracks companies involved in this sort of thing is IGF - the IShares Global Infrastructure ETF that provides exposure to companies that construct and manage infrastructure, including toll roads, ports, railroads, water and wastewater systems, and power generation and distribution plants.
So, we have three ETFs that offer gains potential if Mr. Trump keeps his promises. I am certainly not suggesting that these are the best ETFs – you can go online and search for others – and I am not suggesting that you buy them. I have identified these ETFs only to illustrate how NAOI Dynamic Investments can use them to capture potential profits in the current political / economic environment while traditional portfolios help by virtually the entire investing community cannot.
Using Static, Buy-and-Hold Portfolios: A Loser’s Approach
For most portfolio holders today the only way to take advantage of the potential price increases in these ETFs is to place one, two or all of three of them in a traditional buy-and-hold portfolio and just wait and see what happens. But this is very risky business as these are all volatile ETFs that can suffer significant losses. Adopting this strategy is what I call a “Loser’s Game” of watching prices go up and down with no plan to take profits or to limit losses. This is the sad state of investing today in which people are advised to own “static” portfolios in “dynamic” markets. The National Association of Online Investors (NAOI) has developed a better way to invest using dynamic investments as discussed next.
A "Dynamic Trump Investment": Using a Winner’s Approach
The ONLY effective way to take advantage of the gains potential of the afore mentioned ETFs is to place them in the Dynamic ETF Pool (DEP) of an NAOI Dynamic Investment that I will call the “Trump DI”. As you can read at the above link, a Dynamic Investment’s DEP contains ETF “candidates” for purchase. The Trump DEP should also contain a Stock ETF (e.g. SPY) and a Bond ETF (e.g. TLT). So, the DEP of the Trump DI will contain the following ETFs:
· XAR, VDE, IGF, SPY, TLT
The Trump DI will then automatically buy the one ETF, or perhaps two at the owner’s discretion, that is trending up most strongly when it is reviewed on a quarterly basis. Dynamic Investment Theory also calls for each ETF purchased to be protected with a Trailing Stop Loss Order.
The Trump Dynamic Investment!
We have now designed a “dynamic” investment that will only buy the Trump-friendly ETFs when they are trending up in price more strongly than any other ETF in the DEP. This approach allows investors to capture profits when they are available and to avoid the significant risk of loss that holders of these ETFs in a “static” portfolio face. This is the “Trump Dynamic Investment”.
The Power of NAOI Dynamic Investments
This short example is presented to show how investing information that today is unusable by the investing public suddenly becomes actionable and valuable through the use of Dynamic Investments. Today’s almost universal use of buy-and-hold portfolios makes owning volatile ETFs too risky. NAOI Dynamic Investments that use a buy-and-sell strategy enable investors to own volatile ETFs without excessive risk, as a result, a whole new world of returns potential opens up. Now, finally, investors can take advantage of market intelligence when it is presented to them.
More information on how to use NAOI Dynamic Investments is found at www.DITheory.com and in the NAOI Publication: The Dynamic Investment Bible. Also my Author’s Blog found at www.ditheory.com/blog provides a wealth of information on the use of this next-generation investment type.