The fourth quarter of 2024 was dominated by President-elect Donald Trump, with his favored investments emerging as top performers. Self-described as the “crypto president,” Trump has pledged to build a “strategic national Bitcoin stockpile” and appoint regulators sympathetic to cryptocurrencies.
According to Morningstar, Digital Assets became the quarter’s best-performing fund category, posting a remarkable average gain of 37.9%. Leading the surge was the iShares Bitcoin Trust exchange-traded fund, which drew $5.8 billion in investor inflows during November alone, achieving a quarterly return of 47.7%.
Trailing behind were Energy Limited Partnerships, which saw a comparatively modest increase of 9.3%. This category, comprising oil and gas pipeline companies, stands to benefit from Trump’s pro-drilling policies. Despite these strong performances, the broader S&P 500 index recorded only a 2.4% return for the quarter, marking a slow conclusion to a year that saw a stellar 25% gain overall.
The Federal Reserve’s announcement on December 18 that it would scale back interest rate cuts dampened bond market performance. Morningstar’s Long-Term Bond category fell by 5.5% in the fourth quarter, following a 7.6% rise in the previous quarter. In this environment, actively managed funds like the $172 billion Pimco Income fund outperformed their passive counterparts, losing only 1.0% compared to the Vanguard Total Bond Market II Index fund’s 3.1% decline.
Dividend-focused funds, including Utilities and Real Estate, also faced challenges as higher interest rates reduced their appeal. Utilities funds dropped 4.0%, while Real Estate funds fell 7.0%, despite strong prior-quarter gains of 17.5% and 15.8%, respectively. However, financial stock funds bucked the trend, benefiting from Trump’s deregulatory agenda. The Financial Select Sector SPDR ETF surged 6.3% for the quarter, outpacing the Technology sector’s 6.0% gain.
Trump’s administration is poised to dismantle key provisions of the Dodd-Frank Act, a move welcomed by banks. This deregulation, while potentially boosting short-term growth, carries risks reminiscent of the 2008-09 financial crisis.
Crypto-related funds were the quarter’s standout performers, reflecting Trump’s ties to the industry. The GraniteShares 2x Long PLTR Daily ETF, leveraging Palantir Technologies’ performance, soared 263.1%, while Tesla-related funds also posted significant gains, buoyed by CEO Elon Musk’s political donations.
Meanwhile, funds tied to renewable energy suffered amid expectations of policy reversals. The Invesco Solar ETF, for example, fell 22.4%. In contrast, Energy Limited Partnership funds rallied, driven by Trump-aligned industry leaders like Kelcy Warren of Energy Transfer.
As ETFs surpassed $10 trillion in assets for the first time, investors continued to favor passive strategies. However, actively managed bond ETFs, such as Fidelity Total Bond, also attracted significant inflows.
The long-term implications of Trump’s economic policies remain uncertain. With his focus on cryptocurrencies, deregulation, and tax cuts, the financial landscape is set for profound changes in 2025 and beyond.
