4 Yellen-Friendly ETFs

by on January 28, 2014 | ETFs Mentioned:

After eight years of serving at the helm of the Federal Reserve, Ben Bernanke’s term will expire on Saturday, when his successor Janet Yellen will take over. Yellen (who is currently the Vice Chairman of the Federal Reserve) will be the first woman to hold the position of Chairperson of the Federal Reserve, making February 1st a monumental day in her career. Now, all economic eyes will turn to her, as questions of tapering and further quantitative easing have been surrounding the market for years. These questions have created a sense of anxiety on the Street, as investors look to Yellen to keep the bull run alive.

10 Key Facts on Janet Yellen

  1. Janet Yellen Has served as the Vice Chairman of the Federal Reserve since October of 2010.
  2. She received her Ph.D. in economics from Yale University in 1971.
  3. Yellen is also a member of the Federal Reserve Board, a term that will end on 1/31/2024 regardless of the length of her tenure as Chairwoman.
  4. She will be the first democrat to hold the position since Paul Volcker in 1987, though it has been noted that she has some bipartisan backing.
  5. Yellen is considered a “dove,” meaning that she is more concerned with unemployment than inflation. Dovish policies usually shy away from interest rate hikes, which will make for an interesting conflict with rates that are currently at their historic low.
  6. The Wall Street Journal named Yellen as the most accurate forecaster among the Fed, citing over 700 predictions and ranking members on how well they fared.
  7. She has supported the current quantitative easing program and has even alluded that more could be injected into the economy if it should need it.
  8. Yellen was confirmed as the next Chairwoman of the Federal Reserve by a vote of 56 to 26; the lowest amount of votes any Fed Chair has ever received (note that not all Senators were able to vote due to inclement weather).
  9. After calling the 2007 housing bubble and warning of its possible consequences, Yellen has had a focus on developing low and moderate income households to help bolster that sector.
  10. Yellen is aiming for U.S. GDP growth to hit at least 3% (if not more) in 2014.

President Obama Flanked by Janet Yellen and Ben Bernanke4 ETFs For Yellen’s Tenure

Below we outline four ETFs that may be able to take advantage of the upcoming Chairwoman’s policies and economic thought.

  1. TIPS Bond ETF (TIP, A): Given Yellen’s dovish nature, she has stated that she is willing to let inflation rise slightly if unemployment can be lowered. That being said, TIP presents itself as a strong option, as it invests in inflation-protected securities that will be able to successfully navigate a rise in prices around the nation.
  2. Materials Select Sector SPDR (XLB, A): Though she noted in her 2011 speech that the housing recovery will likely be long and drawn out, she has made it clear that improving that sector is among her top priorities. XLB invests in materials firms that are heavily tied to the housing sector, putting this fund in a strong position should the housing recovery continue under Yellen.
  3. Consumer Discretionary Select Sector SPDR (XLY, A): Colleagues have often noted that Yellen takes unemployment very personally, as her extensive time spent studying the phenomenon has made it her biggest priority over the years. If Yellen is able to successfully bring down the unemployment rate XLY could step in with some nice gains. The ETF measures consumer discretionary firms, ones that will benefit from a more employed economy, and one with more discretionary income for citizens. Yellen is also an advocate for a higher minimum wage and closing the gap on income inequality, another policy that could boost discretionary companies.
  4. Short Financial Select Sector SPDR (XLF, A): Reining in the power of Wall Street and major financial institutions has been a hot topic since the collapse of Lehman Brothers in 2008. Yellen is an advocate of more regulations and restrictions on the activities and practices of major banks and financial intermediaries. Though financials have been charging higher throughout the recovery, stricter control and regulations could cut into revenues of these juggernaut firms. Of course, as the past has shown, enacting any policies against big banks is an almost insurmountable task, so it would not be far-fetched to think that Yellen will be unable to sway policy on these institutions. In the case of the latter, shorting XLF makes little sense; this play depends purely on Yellen’s eventual sway with Congress and the like.

Follow me on Twitter @JaredCummans.

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Disclosure: No positions at time of writing.