Following the inauguration of Donald Trump’s second term as the US president, DBS Group Research analysts have identified several US exchange-traded funds (ETFs) across five key areas as top picks for investors.
Analysts Foo Fang Boon and Ling Lee Keng expect the US to continue its strong performance; for artificial intelligence (AI) to remain a dominant force; the growth of the financial, consumer discretionary and industrial sector; a positive backdrop for small-cap companies in the US; and for gold to shine.
“Momentum in US markets shows little sign of slowing down. Consensus expects the S&P 500 Index to deliver double-digit growth yet again this year or a 10.9% increase from current levels, even after two consecutive years of strong 20% growth in 2023/2024,” the analysts note.
They note that this leading performance of the US is likely underpinned by a resilient economic growth of 2% forecasted by DBS for 2025. The team also expects the US Federal Reserve (US Fed) to enact two rate cuts of 25 basis points (bps) each. Finally, an estimated robust earnings growth of 10.2% is likely to make the US more attractive than its developing market (DM) peers.
The analysts have named the SPDR S&P 500 ETF Trust (SPY), the very first listed ETF in the US as their ETF pick to ride on the growth of the US market. They say that it gives investors broad exposure to the world’s largest market and many of its most recognised brand names in a single fund.
The technology sector accounts for the bulk of the weightage at about 31%, followed by financial services, consumer cyclical and healthcare which account for about 10% each. The top three holdings within the SPY are Apple, Nvidia and Microsoft.
As AI “still takes centre stage” with Nvidia’s “spectacular” 171% price return in 2024, Foo and Ling expect 2025 to be no different as sustained AI demand and broader industry recovery drive a steadier growth outlook for the semiconductor industry.
Beyond chips, investors would also be keeping an eye on potential winners of ongoing AI adoption and monetisation efforts such as Alphabet and Meta in the communications services sector.
“The comparatively fauvorable price/earnings-to-growth (PEG) ratio of these tech-related sectors, relative to the S&P 500 Index would also contribute to heightened investor interest,” they add.
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Their top picks are Vaneck Semiconductor ETF (SMH), which consists of 25 highly liquid large-cap companies that generate at least 50% of their revenue from semiconductor production and equipment. Invesco QQQ Trust Series 1(QQQ), which tracks the NASDAQ 100 Index, is another pick. The NASDAQ 100 Index consists of the largest domestic and international non-financial companies listed on the exchange.
The slew of measures relating to reshoring, tax cuts and deregulations proposed by Trump are expected to be positive for specific sectors, namely financials, consumer discretionary and industrial, the analysts say.
They name three ETFs — Financial Select Sector SPDR (XLF) with holdings primarily in the diversified financial services, banks, capital markets, insurance and consumer finance segments.
The Consumer Discretionary Select Sector SPDR Fund (XLY) with 50 holdings and exposure to companies in retail, broadline retail hotels, restaurants, leisure, textiles, apparel and luxury goods, among others.
They also name the Industrial Select Sector SPDR Fund (XLI), which provides exposure to companies in aerospace and defence, industrial conglomerates, marine transportation, transportation infrastructure, machinery, ground transportation, among others.
Next, Foo and Ling note that Trump’s pro-business and America-first agenda, against a resilient US economic backdrop, should prove to be supportive for equities in general, with no exception towards small and mid-cap stocks.
“The higher exposure to sectors highlighted above – vis-à-vis the S&P 500 – also makes it a better instrument to express this trade idea,” they note.
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They add that the Russell 2000 has an additional 4.3% and 11.2% exposure to financials and industrials, respectively. Small caps are also seen as key beneficiaries of the broadening equity market rally, should risk sentiment improve over time.
The analysts name iShares Russell 2000 ETF (IWM) for its exposure to 2,000 US small-cap domestic stocks in a single fund.
Finally, with the Trump term bringing in a fair share of risks, the analysts note that the allure for gold as a haven asset has risen as a result.
“SPDR Gold Shares (GLD) is the largest physically backed gold ETF in the world. Besides the US, GLD also trades on other exchanges such as the Singapore Stock Exchange, Tokyo Stock Exchange, and the Stock Exchange of Hong Kong. Its high liquidity among the gold ETFs is a key advantage for investors,” note Foo and Ling.
