ETF investors can seize chances and face dangers during the presidential election, experts advise.

• Regardless of the outcome of the U.S. presidential election, exchange-traded funds could have some clear winners, experts predict.
• It is advised to avoid making impulsive alterations to your investment portfolio based on the outcome of the presidential election.

Experts predict that there will be some clear winners for exchange-traded funds, or ETFs, regardless of the outcome of the U.S. presidential election.

The next president, whether it's former President Donald Trump or Democratic nominee Kamala Harris, will have a significant impact on U.S. policy, and this presents challenges to the current state of affairs, particularly in the areas of taxes, regulation, and trade.

According to Kim Wallace, senior managing director and head of Washington policy research at market research firm 22V, what were initially risks during a webinar hosted by ETF.com in late October have turned out to be opportunities once they were reached.

The panel featured Anu Ganti, the U.S. head of index investment strategy at S&P Dow Jones Indices, and Kristina Hooper, the chief global market strategist at Invesco.

Potential winners and losers

Depending on the election outcome, certain ETFs or funds may outperform in the months ahead. For instance, those related to Big Tech and digital coin ecosystems could benefit if a second Trump presidency occurs, while funds focused on residential construction, defense manufacturing, and elder care may see a boost if Harris wins in 2024, experts predict.

According to Hooper of Invesco, the outcome of the battle for Congress will determine the scope of what can be achieved in a divided or unified government.

ETFs have increasingly become popular among investors, with assets reaching $10 trillion in September. The trend is attributed to benefits such as lower taxes and fees compared to mutual funds.

ETFs are commonly associated with passive strategies, but there has been a recent increase in actively managed ETFs, aiming to outperform broader market performance.

Financial advisors advise against making impulsive changes to your investment portfolio after the election results.

According to Hooper, history suggests that the sector-level results were often "unexpected" or "opposite of what was expected."

During the first Trump administration, there was support for traditional energy as the country leaned toward increasing U.S. oil production, but "surprisingly, during that time we observed energy stocks outperforming," Hooper said.

"Sometimes what we think might happen isn't actually what happens," Hooper said.

The element of surprise

In November 2016, the S&P 500 experienced a 4% increase, but there was a significant 19% difference in performance among sectors, as stated by Ganti. She added, "There was a considerable level of surprise in this outcome, as none of us can accurately predict future events."

"Wallace, 22V, stated that politics and policy always involve surprise and expectations based on what is visible and current prices."

Although there may be "very significant volatility" in the near term until the election is certified in January, other factors such as the Federal Reserve's anticipated interest rate cuts will have a greater impact on investors in the long term, according to Hooper.

Wallace stated that once the risk of elections in the U.S. is surpassed, macroeconomic fundamentals and company performance will become the primary factors.

Buffer ETFs can protect from losses

Hooper advised investors to consider various tools to provide diversification and reduce portfolio volatility.

In this case, so-called buffer exchange-traded funds could provide some downside protection.

Defined-outcome ETFs, also known as buffer ETFs, employ options contracts to provide investors with a predetermined range of outcomes over a specified time frame. These funds are linked to an underlying index, such as the S&P 500.

ETFs with higher fees and a one-year holding period are also available.