Guessing the ingredients of a tax plan before legislation is passed is a bit like forecasting the weather in New England: The outlook changes every hour. But given the sparse outlines handed out by the Trump administration in a one-page memo on April 26, here are a few investments that stand to gain from tax reform.
One provision of the Trump tax plan is a tax rate of 15% on pass-through income. The rule would affect partnerships, S corporations and limited-liability companies. Stockholders in master limited partnerships would also get the 15% rate on any pass-through income, making their shares more valuable.
The new tax rate would be particularly welcome to shareholders in MLP funds such as Oppenheimer SteelPath MLP (MLPZX), the largest energy MLP fund in the Morningstar database — and one that sports a 9.99% 12-month trailing dividend yield. Alerian MLP ETF (AMLP), the largest energy MLP fund in the ETF universe, sports a 7.5% trailing yield.
Another proposal would allow companies with significant overseas cash hoards to repatriate that cash at a 10% rate, rather than the maximum 35% corporate rate. While many companies have overseas cash stashes, few rival Apple, which has $246 billion in cash, most of which is overseas. Should Apple be able to repatriate its cash at a lower rate, the stock should be worth more than investors currently think. ETFs like the Profunds Nasdaq 100 (QQQ), which has about 12% of its assets in Apple, would be a beneficiary. So would Fidelity Select Computers Portfolio (FDCPX), which has 19.6% of its assets in Apple, according to Morningstar.
Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA, thinks that investors could also benefit from holding other cash-rich companies, such as Microsoft (MSFT), Intel (NTC) and Cisco (CSCO). One way to do that: First Trust NASDAQ Technology (TDIV).
Although the financial sector would have no particular tax benefit under the Trump proposals, they could well benefit from loosened regulation under the new administration. For that reason, the financial sector has been one of the biggest darlings of the hedge fund industry with Bank of America (BAC) and PayPal (PYPL) being particularly popular, according to Standard & Poor's CapitalIQ. So far this year, however, U.S. financials have been outperformed by international financials, in large part because the latter have been clobbered during Europe's financial woes. iShares MSCI Europe (EUFN) has soared 12.2% this year, vs. 3.3% for iShares U.S. Financials.