The shutdown of the U.S. government and the possible raising of
the federal government's debt ceiling are two major concerns for
the U.S. economy right now. It seems that a prolonged shutdown is
bound to have a major impact on the U.S. economy and consumer
Following Monday, the U.S. government went in for its first shut
down since 1995, on account of Democrats and Republicans' refusal
to compromise over a number of issues. The resultant shutdown will
send nearly one million U.S. federal employees home unpaid.
Unfortunately, such a shutdown of the federal government will put a
wrench into the gears of the recovering U.S. economy (
3 Sector ETFs to Watch for the Budget Battle
However, investors should note that the bigger hazard to the U.S.
economy is still the raising of the federal government debt
ceiling. President Obama is demanding a rise in debt ceiling of
$16.7 trillion in order to avoid a financial crisis. For if there
is a breach of the debt ceiling, it could set off a global
financial crisis by causing a default on U.S. treasury bonds.
The partial government shutdown has led to uncertainty surrounding
the U.S. economy. The U.S. equity market will therefore remain
volatile for the month of October. In fact, if the debt ceiling is
not raised, it will have a huge impact on the U.S. dollar and stock
Time to Buy Treasury Bond ETFs?
In such a month that looks to be fraught with risk, we would like
to highlight some ETFs that represent the most suitable investments
in an economic situation like this:
ETFs to Focus on
Low Volatility ETFs
In such a politically uncertain environment, volatility is expected
to creep into the market. With the market expected to remain
volatile for most of the trading sessions, investors can consider
investing in low volatility ETFs (
Minimum Volatility ETFs: Fact or Over-estimated
In case of any market pullback, investing in ETFs with low risk
turns out to be a top choice for investors, in order to endure the
market volatility. In this context,
PowerShares S&P 500 Low Volatility ETF
represents a good option.
SPLV comprises of stocks from the entire universe of S&P 500
stocks that have exhibited lowest historic volatility over the last
trailing twelve month period. Low volatility stocks protect the
downside risk in the market.
This is the reason why the ETF is tilted towards low beta sectors
like consumer staples and utilities. Utilities and consumer staples
together account for 55.2% of the asset base.
SPLV appears to be the most popular ETF in the segment trading at
volume levels of more than two million shares a day. The fund
manages an asset base of $4.4 billion and invests in a basket of
100 securities. The ETF charges a fee of 25 basis points annually.
Johnson & Johnson, Dominion Resources Inc/VA and PepsiCo Inc
are the top three holdings of the fund. Over the period of one
year, the fund has delivered a return of 16.25%.
When markets become uncertain, investors should consider investing
in a defensive sector ETF. Defensive sectors have a role to play
when the economy strays from its path of growth. With this
being said, utility sector ETFs currently represent an interesting
In this context, the investor can consider investing in
Utilities Select Sector SPDR Fund (
XLU is one of the most popular and widely traded utility ETFs. The
fund manages an asset base of $5.37 billion.
This fund holds 33 stocks and the top 10 companies get a share of
57.5% net assets. The ETF has a dividend yield of 4.05% and charges
a fee of 18 basis points.
Among individual holdings, top stocks in the ETF include Duke
Energy, Southern Co, and Dominion Resources comprising 9.27%, 7.72%
and 7.62%, respectively, of total net assets
(Consider This ETF for a Better Investment in
Investors with a pessimistic view on the economy can consider
investing in the yellow metal. If the debt ceiling is not raised,
it will definitely hurt the U.S. equity market as well as the fixed
income credit sectors.
With the debt ceiling debacle, investors are apprehensive about its
possible impact on the U.S. economy. In such a scenario, one
commodity which is in the limelight is gold. A general trend in the
gold market is that it tends to rise when the market turns south.
The two largest gold ETFs in the space are
SPDR Gold Trust (
COMEX Gold Trust (
. Both of these are backed by physical gold and match the spot
prices of gold. GLD tracks almost 100% the physical price of gold
bullion measured in U.S. dollars, and kept in London under the
custody of HSBC Bank USA. Each share represents about 1/10th of an
ounce of gold at current prices (
Gold Mining ETF Investing 101
The fund appears to be rich in both asset base and volume. It
manages an asset base of $38,622.9 million and trades with a volume
level of more than eight million shares a day. It charges a fee of
40 basis points suggesting a lower bid ask spread.
IAU is backed by physical gold under the custody of JP Morgan Chase
Bank in London. Each share represents about 1/100th of an ounce of
bullion at current prices. This fund manages an asset base of
$7,671.3 million a day and trades at a volume level of more than
six million shares a day. IAU is a low-cost fund charging a fee of
25 basis points, much lower than what GLD charges at 0.40%.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
SPDR-GOLD TRUST (GLD): ETF Research Reports
ISHARS-GOLD TR (IAU): ETF Research Reports
POWERSH-SP5 LVP (SPLV): ETF Research Reports
SPDR-UTIL SELS (XLU): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for the
Next 30 Days. Click to get this free report