1 Vanguard ETF That Could Be a Big Winner in Trump's Second Term

Bank stocks made up one of the best-performing areas of the stock market in 2024. The financial sector, which mainly consists of banks, rose by more than 30%. However, with the potential for further Federal Reserve interest rate cuts and a new pro-business administration in Washington, there could still be good times ahead.

For many investors, the best way to get bank stock exposure is through a low-cost ETF, and the Vanguard Financials ETF (NYSEMKT: VFH) is one that could be worth a closer look right now.

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What is the Vanguard Financials ETF?

As the name suggests, Vanguard Financials ETF is an index fund that aims to track the performance of the overall financial sector. It tracks a benchmark index of a little more than 400 stocks, and since it's a weighted index, larger companies account for a greater percentage of the fund's assets.

Top holdings at the end of 2024, the latest information available, included JPMorgan Chase (NYSE: JPM), Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), Mastercard (NYSE: MA), Visa (NYSE: V), and Bank of America (NYSE: BAC).

While bank stocks make up a large portion of the assets, it's important to note that there are other types of companies as well. Berkshire is the biggest non-bank, but there are also high concentrations in payment processing (particularly Mastercard and Visa), insurance, and asset-management businesses.

The ETF has a low 0.1% expense ratio, which essentially means that $1 for every $1,000 you have invested will go toward fees each year. To be clear, this isn't a fee you have to pay. It will simply be reflected in the fund's performance over time.

Several positive tailwinds in 2025 and beyond

There are several potential catalysts that could cause bank stocks to have another excellent year in 2025, and for the next several years as well.

Interest rates are an obvious example. While the pace and magnitude of future Federal Reserve rate cuts are up for debate, the overwhelming consensus is that the direction will be lower over the next few years. Lower rates should lead to margin expansion for banks, as well as increased consumer demand for loans.

It's also important to point out that the financial sector could be a major beneficiary of the Trump administration's policies. For example, President Trump has pledged to slash regulations and even issued an executive order on day one of his presidency to freeze any new or pending regulations. And several bank executives have said they foresee increased merger-and-acquisition dealmaking in a more relaxed regulatory climate.

There's also the potential of lower corporate taxes, which would disproportionately affect banks. Trump campaigned on a proposed 15% corporate income tax rate, and with most big banks, such as JPMorgan Chase and Bank of America, having effective tax rates of 20% or more, this could be a big driver of bottom-line profit if it were to become reality.

Of course, there is a lot that could potentially go wrong. For example, some experts believe certain policies, such as tariffs, could end up being inflationary, which would be likely to be a negative catalyst for banks. But there's a solid case to be made that the positive tailwinds outweigh the negative risks right now.

Buy for the long run

As a final thought, I have no idea what the financial sector will do in the short term. There's no concrete plan for corporate tax reductions or bank deregulation just yet, and no timetable for any positive changes. Plus, even if some of the positive tailwinds happen, there could certainly be volatility in bank stocks along the way.

The point is that if you're looking for bank stock exposure in your portfolio, it could be an attractive environment for both growth and profitability, as it was during Trump's first term. But while this looks like a strong entry point, ETFs like this are best approached as long-term investments, so be prepared to allow at least a few years before you plan to cash out.

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JPMorgan Chase is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Matt Frankel has positions in Bank of America and Berkshire Hathaway. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, JPMorgan Chase, Mastercard, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.