Trade Fiscal Policy Drive Defense ETF Gains, Record Flows
The policy agenda under Trump 2.0 has created distinct market phases since November's election, with ETF performance swinging dramatically around key policy announcements, particularly tariff decisions, said Aniket Ullal, head of ETF research at CFRA Research.
Trump's "One Big Beautiful Bill" and evolving trade policy are fundamentally altering how ETF investors approach sector allocation, with defense spending increases and European market dynamics creating new opportunities while tariff uncertainty drives the highest stock dispersion since Covid-19, according to the webinar analysis.
Defense ETFs have emerged as clear beneficiaries of increased Pentagon spending, according to research presented during the webinar. The iShares U.S. Aerospace & Defense ETF (ITA) gained 27% year to date, while European defense exposure through the Select STOXX Europe Aerospace & Defense ETF (EUAD) surged 72%, driven by NATO pressure on member countries to boost defense budgets.
"Defense and aerospace ETFs have been amongst the best-performing sectors in 2025," Ullal said during the July 9 webinar, noting there are 18 ETFs in the U.S. with varied geographic and sector exposure to the defense theme.
The policy changes have made holdings analysis critical, as some defense ETFs include technology exposure to companies like Palantir Technologies Inc. (PLTR), which became the S&P 500's best performer this year, he added.
Trade policy uncertainty has driven stock dispersion to levels not seen since the pandemic, according to the webinar. Within retail sectors, return differentials between companies like Dollar General Corp. (DG) and Dollar Tree Inc. (DLTR) expanded from 6% in 2024 to 20% this year due to varying China exposure levels.
"When you have higher stock dispersion, the outcome for active managers tends to be very different," Ullal said, noting increased interest in active ETF strategies.
The dollar weakened 7% against trade-weighted currencies, benefiting exporters and international ETF performance, according to John Sonsalla, head of policy and legal research at Washington Analysis, a CFRA business. Both developed and emerging markets outperformed U.S. markets despite limited ETF flows into international strategies.
Deregulatory efforts under Securities and Exchange Commission Chairman Paul Atkins are expected to accelerate ETF launches, with over 60 managers filing for ETF share classes of mutual funds. The crypto ETF ecosystem expanded to $158 billion in assets across 76 funds, approaching the $178 billion in gold ETF assets.
ETF flows remain on track to exceed 2024's record $1.2 trillion, driven primarily by retail investors who "bought the dip" during policy-driven volatility, according to the webinar.Permalink | © Copyright 2025 etf.com. All rights reserved
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Bloomberg
16 minutes ago
- Bloomberg
Mered CEO on Factors Driving Dubai Property Boom
Dubai's housing boom that began in late 2020 has continued despite Trump's tariff policies and conflict in the region. Michael Belton, CEO of Dubai-based developer Mered, spoke with Bloomberg's Chief Africa Correspondent Jennifer Zabasajja on Horizons: Middle East and Africa about the surge in property prices, and whether Dubai may be heading toward a bubble. (Source: Bloomberg)
CNBC
16 minutes ago
- CNBC
CCTV Script 13/08/2025
The market has largely viewed the latest overnight release of the Consumer Price Index (CPI) inflation report in a positive light. The nominal CPI rose by 2.7% year-on-year, slightly below the expected 2.8%. The report also indicated stronger-than-expected inflation in service, while goods inflation came in lower than anticipated. These figures have reinforced market expectations for a rate cut and boosted the performance of U.S. stocks overnight. Specifically: All three major U.S. stock indices rose by more than 1% overnight, with the S&P 500 and the tech-heavy Nasdaq Composite both closing at record highs. According to CME FedWatch, the market's probability of a 25-basis-point rate cut by the Federal Reserve in September has increased from 85.86% the previous day to 94.93%. Although the market widely expects a rate cut in September, the focus among those supporting the move varies. Some are paying attention to inflation trends, while others are closely monitoring employment data. First, regarding the impact of Trump's tariff policies on inflation, expert opinions are divided. One camp argues that the effect of tariffs on U.S. inflation is actually quite limited. "Now you have six months of evidence, I don't really think tariffs cause inflation. Taxes don't cause inflation. And so what you're seeing in the data is very muted effects that are one time increases in the price level." It's worth noting that James Bullard is currently considered a top candidate for the next Federal Reserve Chair. In an interview with CNBC overnight, he also stated that he expects the Fed to cut rates by a total of 100 basis points over the next year. Meanwhile, another camp in the market warns that the impact of tariffs on inflation may gradually become more apparent in the future. Experts caution that, in addition to nominal CPI, it's crucial to monitor the trajectory of core CPI. "We are seeing a little bit of an uptick in the sequential core inflation and underlying inflation data. And I think a large part of that is the moderate impact we're seeing of tariff pass through that that is likely to grow in the months ahead." Additional analysis points out that while businesses may absorb costs in the short term, they will ultimately pass them on to consumers, particularly in industries with already narrow profit margins. "For instance, groceries, I mean, there's very little margin there. They're going to, you know, your tomato prices are going to go up because of because they can't really absorb, you know, those prices. It's just a matter of time that this, that the tariff related inflation starts to show up in the data." Finally, it's noteworthy that no consensus has yet been reached within the Federal Reserve regarding the pace of future rate cuts. Currently among Fed officials, Michelle Bowman and Christopher Waller represent the dovish camp advocating for . However, Jeffrey Schmid, President of the Kansas City Fed struck a hawkish tone overnight, arguing for . With moderate voices further complicating the divide, analysts suggest that even if the Fed initiates a cut in September, the pace may remain measured due to persistent internal disagreements.
CNBC
16 minutes ago
- CNBC
CNBC Daily Open: Trump's 'peace' for Ukraine doesn't seem like what Zelenskyy wants
There was no deal when U.S. President Donald Trump met his Russian counterpart Vladimir Putin on Friday. That was not unexpected. The summit, which was initially arranged to discuss a ceasefire to Moscow's war in Ukraine, was on Tuesday reframed by White House Spokesperson Karoline Leavitt as a "listening exercise" that allowed Trump to get a "better understanding of how we can hopefully bring this war to an end." Prior to the summit, analysts were already casting doubt on the talks advancing any real ceasefire in Ukraine. "Let's be clear, Putin does not take Trump seriously," Tina Fordham, founder of Fordham Global Foresight, told CNBC. And the fact that the summit was scheduled — and Putin invited to Alaska, the first time he stepped on U.S. soil in about a decade — was already a "big win" for the Kremlin leader, according to a comment by Richard Portes, head of the economics faculty at the London Business School, before the meeting took place. While no agreement was reached, Trump on Friday described the meeting as "very productive" — and announced the next day that he would be pursuing a "peace agreement" rather than a ceasefire between Russia and Ukraine. But peace means very different things to the Ukraine, Russia and America. To one, it could be the complete halt of armed warfare and the retreat of foreign troops from its soil. To another, it might seem like acquiring annexed territory. And for some, it might look like a shiny golden coin engraved with the profile of Alfred Nobel, regardless of the prerequisites. Trump calls on Ukraine to 'end the war with Russia.' The U.S. president on Sunday said that Ukrainian President Volodymyr Zelenskyy can either stop the conflict or "continue to fight." Putin has agreed that the U.S. and European nations could give Ukraine "Article 5-like" security guarantees, the White House said. OpenAI in share sales talk that would value it at $500 billion. The shares would be sold by current and former employees to investors including SoftBank, Dragoneer Investment Group and Thrive Capital, according to a source. The Dow Jones Industrial Average outperforms. Major stock indexes ended Friday mixed, with the Dow Jones Industrial Average rising a fractional 0.08%. Asia-Pacific markets mostly rose Monday. China's CSI 300 hit its highest level since October 2024. A trip by U.S. trade officials to India has been called off. The visit, which was expected to take place between Aug. 25 and Aug. 29, will likely be rescheduled, according to Indian news broadcaster NDTV Profit. [PRO] Fedspeak to parse for the week. Minutes for the U.S. Federal Reserve's August meeting come out Wednesday, while Fed Chair Jerome Powell will speak at Jackson Hole, a symposium of economic policy, on Friday. They may give clues on policy path. This Asian data center hub is grappling with the massive costs of AI: energy and water Johor, a state at the southern tip of Malaysia, has quietly become one of Southeast Asia's fastest-growing data center hubs amid the heightened compute demands of AI. Though that has created new economic opportunities and jobs, there are signs the industry is pushing the limits of the state's energy capacity and natural resources, with officials slowing approvals for new projects.
