Trump tariffs: Challenges and opportunities for small businesses

There's still 54 days before the inauguration of president-elect Donald Trump, but that is not stopping the so-called Trump trade from fueling some rallies across industries. The president's policies are expected to boost. I want to bring in Aniket Ullal to discuss how investors can use ETFs to play the Trump trade as part of this week's ETF report brought to you by Invesco. Good to have you here with us. So help us break this down first. What ETFs as of this juncture and what industry or sector exposures have you seen the most flows as it relates to the so-called Trump trade? Well, there's a difference between performance and flows. As you know, sometimes flows tend to follow performance. Maybe we can talk about performance first. In terms of performance, we've seen financials react very positively after the election of president-elect Trump. In particular, we've seen regional banks do very well. If you look at tickers like KRE, which holds a bunch of regional banks, those have actually reacted very positively to the election. That's partly driven by expectations of loser regulation, expectations of the new administration being less hawkish on antitrust. So in other words, expectation of more M&A activity. That's also driven ETFs that are focused on exchanges, more capital markets related. One ticker is IAI, as you just showed on your screen. So IAI, KP, WB, KRE, these are all tickers within the financials sector that have actually benefited as part of the Trump trade. And you mentioned there's kind of two ways to think about or talk about flows, performance, and then what is the other? Because to my understanding, the flows that we're seeing, the inflows into ETFs over the course of this year are expected to hit a record or perhaps cross $1 trillion. Correct me if I'm wrong or not on the record. You're absolutely right. This year, for the first time, we may expect in a calendar year to see flows into ETFs in the U.S. exceed a trillion dollars. We'd already passed the record, actually. The record was actually in 2021, where we had about $911 billion flow into ETFs in the U.S. We're already at $950. So we've already passed the record. We now could pass a trillion. Historically, if you look at flows on a seasonality basis, the second half of December tends to be the strongest in terms of money coming into ETFs, particularly to big, broad ETFs like SPY, IBB that track the S&P 500. This is for a variety of reasons. Investors rebalancing their portfolios at the end of the year, hedge funds, equitizing cash, and so on. So we think we're on track to exceed a trillion, which is both a testament to the ETF product structure, as well as, of course, we've had a very strong year in equity markets. So like you said, both in terms of performance and flows, it's been a very good year for ETF investors this year. So now that we've finished a two-year bull market, I think ETF investors are looking at what's going to happen with the new administration and what's going to happen in the new year. So with that in mind as well, the incoming administration and President-elect Trump have been posting on social media about what potential tariffs may look like in the countries that they'd be targeted at, the industries that they might impact as well, as has really been rattling throughout the markets over these past few days and trading sessions. All that considered, where do you anticipate that we might see some fluctuations in ETF activity as a result of tariffs? There's really two elements to this. I mean, President-elect Trump has been talking about China for a long time, but he talked about even 50%, 60% tariffs on Chinese imports. Some of that might be rhetoric to negotiate with China. So we'd have to see what actually happens in practice. That's actually had a big impact on how ETFs have reacted. We've actually seen in the last year a lot of inflows into emerging markets, ex-China ETFs. Historically, China used to make up about 25%, 30% of emerging markets exposure. And so investors are trying to diversify away and look at ETFs that hold emerging markets like India, Taiwan, and so on, Vietnam, that could benefit from some move away from China. So that's one effect that we've seen, which is the China effect and some demand for emerging markets, ex-China ETFs. More recently, President Trump has talked about Mexico and Canada. As you mentioned, he posted that on social media. We've actually not seen as strong a reaction on Mexico. The Mexico ETF is only down about 5% since November 5th, since Election Day. So part of that is also driven by the fact that some of that exposure is very domestic, right? The biggest sectors in that ETF is staples. You've got companies like Walmart, Mexico, big banks that are more domestically focused. So the ETFs haven't reacted as much yet, but of course, this is all fairly new and we have to see how things play out. Aniket Ullal, who is the head of ETF data and analytics at CFRA Research. Thanks so much for taking the time here with us today.