So, without getting political, what is the major flaw with this "strategy"?
The market prices things in. It'll have priced in, based on the latest polls, the expected outcome.
Such as Brexit. There was a drop simply because it was unexpected/unlikely.. but the odds of it happening x the amount the market should be "worth" was valued in. Since it did happen, it then dropped to that expected amount.
If is looking likely to win (and if, as you postulate, the market will drop if he wins..notice all the ifs I'm saying), the market will edge lower. If Trump wins, it'll drop to the expected value of him winning, and if Hillary wins, it'll jump to the expected value of her winning.
And there's the math mistake you made:
4. If Hilary wins, odds are "the market was already priced for a Democratic win" and I buy the funds back.
The market would not price it as a 100% Hillary win. It'll hedge between the two based on the percent liklihood. So when you say "I'll buy the funds back," okay, fine, but you'll buy them at a higher price, and lose money.
So (making up numbers to illustrate a point, and they're round, for easy maths). If candidate A has a 25% chance to win, and the markets should be 1000 if they win, and candidate B has a 75% chance to win, and the markets should be 2000 if they win, then the markets just before the election should be at 1750 (75% of the way between the two, because that's pricing in each liklihood..if they were each 50/50 to win, it'd be at 1500, halfway between the two outcomes). If Candidate A pulls out that 25% chance, the markets drop, but from that 1750 (it's not at 2000, even though candidate b is "expected" to win--it's priced in that win according to the odds). If candidate B pulls it out, as expected, it'll jump to 2000 (it won't already be there, again, because they priced in the chance that candidate B loses).
So if you sell at 1750, hoping to rebuy if candidate A wins, and thinking you'll just rebuy in at no loss if B wins, because they're "expected" to win, you'll lose out when B actually does win, and the market moves up.
Does that make sense?
Here's the other big problem with your plan:
3. If Trump were to win, the markets would over react to a level not seen since... who knows.... eventually cooler heads would prevail and things would return to "normal". How long that is, I am not sure. The Brexit shock lasted about 2 days, but i think this will be longer. At a point once things have calmed down, I would just rebuy those same index funds.
How are you going to time this end of it? It's another market timing problem.
Now, all this to say, maybe the markets will drop either way, whatever outcome (but will drop more from one outcome versus another). Theoretically the market should have priced in each one winning, and that shouldn't happen, but markets aren't always 100% efficient (though likely efficient enough that John Q. can't exploit them).
But that's the mathematical answer to the problem with your idea--thinking that a Hillary win is "priced in" so you can rebuy for the same, when the market is pricing her winning times her odds of winning, and that'll get more accurate the closer we get via polling and such.
Hope that helps. :)