The Obama ETF Portfolio

ETF Investing Alongside the New Administration

XLIOne of the new president’s highest priorities is to create millions of jobs by spending hundreds of billions of dollars.  The spending promises to be concentrated in a few sectors and will be big enough to be an engine of growth for companies in those sectors.

This series takes a closer look at the stimulus plan and models an ETF portfolio that is best positioned to benefit from the avalanche of new spending.

Obama’s New Deal

Budget experts estimate the economic recovery package will cost $600 billion over 2 years  and could approach $1 trillion in total.  Mr. Obama has announced that the plan will have 5 broad categories:

1. transportation and traditional infrastructure
2. school construction
3. energy efficiency, especially in government buildings
4. broadband internet access
5. health care information technology

Transportation and Infrastructure

With stagnant highway capacity, obsolete bridges and crumbling interstates, the nation’s vehicle transportation infrastructure has plenty of room for new investment.  Just to stop the decline in safety, experts estimate that annual highway spending needs to increase by $20 billion per year.

One firm likely to get a piece of the new spending is Fluor Corporation, one of the largest engineering and construction firms in the U.S. that is already managing $10 billion of highway programs.  The ETF with the largest concentration in Fluor is the PowerShares Building and Construction Portfolio (PKB).  Other top holdings include Jacobs Engineering GroupMasTec and Caterpillar.

School Construction

Investment in school infrastructure, especially in lower income districts, is a likely focus for the Obama spending plan.  New schools means more services and the largest school services company in the US isSodexo with 110,000 employees working in U.S. food service and hospitality.

Sodexo is a French company, so a fund such as SPDR S&P International Consumer Discretionary Sector ETF (IPD) is the only way for U.S. investors to gain material exposure with an ETF.

Energy Efficiency

According to the Energy Information Association, buildings consume about one third of all energy used in the U.S.  Making buildings energy efficient would cut down on consumption and the new administration has promised to start with federal buildings.

New insulation, lighting, windows and air conditioning are all potential options for cutting energy use.

The Industrial Select Sector SPDR Fund (XLI) invests in several companies that manufacture products used in buildings including General ElectricHoneywellUnited TechnologiesEmerson Electric and 3M.

Broadband Internet Access

Government incentives and investing in the infrastructure to bring high-speed internet to the home is likely under the Obama administration.  Winners and losers will partly be determined by how well telephone, cable and wireless companies lobby for their interests.  Regardless of who wins that battle, companies that make the networking gear for internet access are likely to come out ahead.

The S&P North American Technology-Multimedia Networking Sector Index (IGN) invests in companies that produce telecom equipment, data networking and wireless equipment.  Top holdings include Research in MotionQualcommCisco and Corning.

Health Care Information Technology

A top priority in the health care arena is to digitize medical records.   A company likely to benefit from that mandate is Cerner Corporation which markets a healthcare information technology solutions,that  provides access to an individual’s electronic medical record at the point of care, and organizes and delivers information for physicians, nurses, pharmacists, front and back-office professionals, laboratory technicians, and consumers.

The PowerShares Dynamic Software Portfolio Fund (PSJ) has 3% of its holdings in Cerner and has stakes in other software companies likely to benefit from the movement to digital record-keeping.