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Trump Budget 2021 Likely to Impact These Sector ETFs

Sanghamitra Saha
·4-min read

President Donald Trump unveiled his latest budget proposal for fiscal 2021, which begins on Oct 1. The record $4.89-trillion budget proposal seeks to boost funding for defense while cutting down on social and domestic programs like environmental protection and healthcare.

This draft budget has proposed many reductions in spending, hinting at the concern about national debt. The budget blueprint plans for $4.6 trillion in deficit reduction, $4.4 trillion in spending reduction and a 21% cut in foreign aid. Trump's fiscal 2021 plan declares that the government's deficit will top $1 trillion only for the current budget year and then will drop to more manageable levels.

Like many market watchers, we believe that chances of passing of this budget blueprint is less given the divided congress but such a proposal indicates what could happen to the below-mentioned sector ETFs if Trump wins the second term.

Healthcare in a Neutral Spot

The budget proposal lowers spending on Medicaid and subsidies for the Affordable Care Act by trillion dollars. The budget would also reduce the federal share of spending for all Medicaid patients, by tweaking rules about how states can offer additional payments to certain healthcare facilities run by state or federal governments. This is estimated to save about $844 billion in a span of 10 years.

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The proposal does not bode well for healthcare providers like HCA Healthcare Inc. HCA and UnitedHealth Group Incorporated UNH. At the end of 2018, HCA operated 179 hospitals, comprising 175 general, acute care hospitals, three psychiatric hospitals and one rehabilitation hospital. UnitedHealth also owns several acute-care hospitals.

iShares U.S. Healthcare Providers ETF IHF measures health maintenance organizations, hospitals, clinics, dentists, opticians, nursing homes rehabilitation and retirement centers. It puts about 22.7% weight in UNH and 4.51% weight in HCA.

But then, health insurers have suffered a lot under ACA due to rising costs. Some health insurers like Aetna AET and Humana HUM have exited public exchanges because more severe and expensive patients joined the program. These health insurers’ stocks also have exposure to the fund IHF. So, the latest budget proposal actually leaves a neutral impact on IHF.

Clean Energy in a Losing Position

Trump's fiscal 2021 plan proposes cuts in several programs, including a 26% reduction for the Environmental Protection Agency. Invesco WilderHill Clean Energy ETF PBW is composed of stocks of companies that are publicly traded in the United States and engaged in the business of advancement of cleaner energy and conservation (read: 2 ETF Areas to Gain From Michael Bloomberg's Campaign).

Defense ETFs in a Decent Place

Trump’s latest budget plan calls for military spending of $740.5 billion, marking a 0.3% increase. Defense ETFs like Invesco Aerospace & Defense Portfolio PPA, iShares U.S. Aerospace & Defense ETF ITA and SPDR S&P Aerospace & Defense ETF XAR are thus expected to perform decently in the coming days. However, only a 0.3% increment suggests that growth in defense spending is probably nearing an end.

Reduction in Safety Net Programs: Trouble for Consumer ETFs?

The Trump administration seeks to lower billions of dollars in government spending toward food stamps and other safety net programs for the poor. Reforming food stamps are expected to save nearly $182 billion over a decade. Lesser federal support for the poor may hurt consumer ETFs like iShares U.S. Consumer Services ETF IYC and Consumer Staples Select Sector SPDR Fund XLP.

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UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
 
Humana Inc. (HUM) : Free Stock Analysis Report
 
HCA Healthcare, Inc. (HCA) : Free Stock Analysis Report
 
Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports
 
Invesco WilderHill Clean Energy ETF (PBW): ETF Research Reports
 
iShares U.S. Healthcare Providers ETF (IHF): ETF Research Reports
 
SPDR S&P Aerospace & Defense ETF (XAR): ETF Research Reports
 
iShares U.S. Consumer Services ETF (IYC): ETF Research Reports
 
iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports
 
Invesco Aerospace & Defense ETF (PPA): ETF Research Reports
 
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Zacks Investment Research
 
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