If McCain Wins, So Could These Funds

One political reality has emerged from the primary madness this week: Sen. John McCain is within reach of the Republican Party nomination for president.

Intrade, a current-events wagering Web site, puts his chances of securing the Republican nomination at nearly 94%. After cleaning up on Super Tuesday in winner-take-all victories in nine of 21 states, McCain has a commanding lead in the delegate count. That includes wins California, New York, Illinois, New Jersey, and Missouri -- five of the six largest contests.

Former Massachusetts Gov. Mitt Romney, the closest competitor to the Arizona senator, announced Thursday he is suspending his campaign. With Romney gone and McCain having a 4-to-1 delegate advantage over the other challenger, former Arkansas Gov. Mike Huckabee, the Republican nomination race can be wrapped up by March 4, assuming a McCain sweep in the remaining primaries.

While I am not predicting the outcome of the general election, McCain's ascendancy invites the question, "What mutual funds or exchange-traded funds might do well during a John McCain presidency?" (To give equal time for all major candidates, I later will look at investments that would do well under a Hillary Clinton or Barack Obama presidency.)

On his Web site , McCain writes that "there are simply not enough American forces in Iraq." He has stated that he would be willing to keep troops in Iraq for 100 years if that is what it would take for victory.

As part of his Iraq strategy, McCain believes that "the U.S. must accelerate the training and equipping of Iraqi armed forces and police." He intends for the U.S. to "bolster its regional military posture" to push back against Syria and Iran aiding and abetting Iraqi violence.

Two top-performing funds that have been beaten down in the recent months are the A-rated ( FSDAX) Fidelity Select Defense and Aerospace (FSDAX) and the A+-rated ( PPA) PowerShares Aerospace & Defense (PPA). The former is an open-end fund, while the latter is an exchange-traded fund. Consider adding one, but not both to your portfolio.

Top holdings of both funds include Lockheed Martin ( LMT), Honeywell ( HON), Boeing ( BA), General Dynamics ( GD) and Raytheon ( RTN).

If you believe that McCain will win the presidency, then the "Straight Talk Express" is telegraphing higher levels of spending on military and defense goods. He also promises to "return astronauts to the moon in preparation for a manned mission to Mars. That could light the next booster stage under these stocks.

His support for embryonic stem-cell research is a signal that not only could federal funding be restored, but anti-science bans may be lifted on institutions putting together public-private research partnerships. Or, as McCain puts it, "dedicate federal research on the basis of sound science resulting in greater focus on care and cure of chronic disease."

The B-rated ( XBI) SPDR S&P Biotech ETF (XBI) gained more than 29% in 2007, and also has fallen in the current rough market so far this year. The top holdings of Celgene ( CELG), Cepheid ( CPHD), Biogen Idec ( BIIB), Genentech ( DNA) and Genzyme ( GENZ) are positioned to benefit from new funding of research initiatives.

Even if John McCain becomes the 44th president of the United States, these funds still could fall in value. If McCain loses his temper, helping Huckabee make a huge comeback, the defense funds ought to still do well, but the science and biotechnology funds would become less attractive.

If McCain loses to either Clinton or Obama, biotechnology ought to prosper, and the defense funds should do all right because there is no choice but to rebuild and replace military equipment worn out in Iraq and Afghanistan.
Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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