All eyes will be on the end of the key FOMC meeting on
Wednesday, with any changes in QE likely to take center stage. The
current program calls for $85 billion in Treasury and MBS purchases
each month, but analysts are looking for this to get cut in a range
of about $5-$20 billion a month.
In fact, according to a
recent WSJ poll
, close to two-thirds of economists surveyed believe that the taper
will begin this week. If this actually happens, it will mark an
important point in the QE experiment and it will begin the long
process of unwinding the Fed balance sheet at a reasonable clip.
The size of the move, however, could have a huge impact on the
markets. Since many-but not a unanimous number-believe that a taper
is coming, a 'no taper this time' statement from the Fed could
definitely move markets.
Meanwhile, a huge degree of tapering could also shock stocks,
especially since, according to the WSJ,
nearly 40% of surveyed economists
believe that the markets haven't fully priced in a September move
High Dividend ETFs to Buy Even If the Fed
Given this, we could definitely see some movement out of the
upcoming Fed decision, so investors should pay close attention to
any changes in outlook from the Fed, or an alteration to the
These changes could have a drastic impact not only on investor
perception, but several key market sectors in particular. We have
highlighted four such segments below, any of which could be in for
some heavy volume trading when the Fed announcement is inevitably
Treasury securities have especially been in focus as of late,
thanks to a surging yield for benchmark government debt. Yields on
10-year government bonds have jumped to nearly 3%, nearly doubling
since the start of May.
This incredible surge started to take place once investors began to
embrace the idea of some Fed tapering. The change in perception
made investors reevaluate their stance on treasury bonds, and
another shift in outlook could happen after this meeting as well.
While there are a number of Treasury bond ETFs to watch in this
space, one that is likely to be a great barometer of mid-term debt
iShares 7-10 Year Treasury Bond ETF (
. As you might be able to guess from the name, it focuses on
treasury bonds that mature between seven and ten years from now,
with a big concentration in debt maturing in 2022 (see
all the Government Bond ETFs here
This fund has struggled as rates have continued to rise over the
past three months, as the price for IEF has declined by 5.2%.
Meanwhile, in terms of yield, this product pays out 2.5% in 30-Day
SEC terms, a decent amount considering the effective duration of
Gold is a safe haven currency that tends to move inversely of the
dollar. So, a strong dollar can push gold lower while a weak
greenback can generally make for solid gains in the yellow metal.
A robust tapering policy could suggest a stronger dollar which may
have a negative impact on gold. Meanwhile, if the Fed refrains from
tapering at this meeting, we could see gold move higher on the
Two ways to play gold are with the
SPDR Gold Trust (
iShares Gold Trust (
. Both are extremely popular, though GLD has more assets and volume
while is a cheaper choice (also see
Gold Mining ETF Investing Explained
The two gold ETFs have lost over 20% YTD, including nearly 5%
losses in the past three month time frame. Both could rise if
tapering doesn't happen though, while a Zacks ETF Rank of 3 for
both suggests that performances might not be that great in the long
term, though short term volatility seems likely.
Emerging markets have been among the hardest hit by the surge in
Treasury bond yields as of late. Investors have really begun to
reevaluate holding on to these risky markets in this type of
environment, instead going for safer investments back in the U.S.
This trend has led to double digit losses for many emerging
markets, with some-such as in India or Indonesia-entering crash
territory. A big taper might push these down further, while a
postponement could help to give these markets a shot in the arm.
Two ultra-popular ways to focus on emerging markets are by
targeting the duo of the
Vanguard FTSE Emerging Markets ETF (
iShares MSCI Emerging Markets ETF (
. These two combine to possess nearly $90 billion in assets under
management, and see great volume as well (see
all the Emerging Market ETFs here
They both moved higher on news of a less hawkish Fed-thanks to the
withdrawal of Summers from the running for chairman-though they
have been under pressure lately thanks to sluggish emerging market
currencies and deficit worries. However, a weak dollar could help
to boost these securities, though with Zacks ETF Ranks of 3 for
both, investors should temper their expectations.
With rising rates, investors have already started to see housing
lose a little bit of steam. Mortgage activity is down a bit, and it
is taking more time to sell houses as well. Plus, with rising
rates, many would-be buyers are now priced out of their homes,
leaving some on the sidelines.
Given this uncertain trend in the key housing market, any shift in
MBS purchases could have a huge impact on housing securities. So
look for a shift in policy to create some big moves in this corner
of the investing world, especially if anything out of the ordinary
One way to play this in targeted form is the
iShares U.S. Home Construction ETF (
. This product targets home builders, holding about 33 securities
in its basket and focusing on mid caps (read
the Comprehensive Guide to Homebuilder ETFs
The ETF is extremely liquid, trading in volumes of more than 5.6
million shares a day, while assets under management is well over
$1.5 billion. ITB has lost about 8% in the past three months, but
it currently has a Zacks ETF Rank of 1 (Strong Buy), so it could be
poised to rebound in the weeks ahead.
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Author is long VWO.
ISHARS-EMG MKT (EEM): ETF Research Reports
SPDR-GOLD TRUST (GLD): ETF Research Reports
ISHARS-GOLD TR (IAU): ETF Research Reports
ISHARS-7-10YTB (IEF): ETF Research Reports
ISHARS-US HO CO (ITB): ETF Research Reports
VANGD-FTSE EM (VWO): ETF Research Reports
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