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Budget Battle Put These Safe ETFs in Focus

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As the clock for new fiscal year starts ticking, the federal government may just have avoided shutdown. The battle over the funding for Planned Parenthood between Republicans and Congress has threatened to halt the nation, raising investors' worries.

Republicans wanted to defund Planned Parenthood, but Senate Democrats have repeatedly blocked bills to do so. If the government shuts down, it could result in an additional blow to the financial market, which is already in trouble thanks to global economic worries stemming from the slowdown in China and other emerging markets, commodity slump and the Fed's uncertain policy (read: 5 Smart Beta ETFs to Beat the Choppy Market ).

However, the chances of a shutdown have reduced following the surprise resignation of the U.S. House Speaker John Boehner last Friday. Additionally, the Senate has advanced a temporary spending bill to the White House for approval in order to avert an immediate government shutdown. This is because the bill would provide 10 weeks of additional time to negotiate the budget deal for fiscal 2016.

Even if the bill is passed, the fear of shutdown will linger but the chance will be delayed for a couple of months, especially if the government fails to cut the deal in this specified period of time. As a result, one cannot deny the looming government shutdown and the uncertainty in the budget deal. Given this, it seems that another bout of volatility on a budget debacle is expected at the end of the year. Thus, investors should play safe for the rest of 2015.

There are a few areas in the ETF world where investors could stash their cash in this uncertain time. Below, we highlight three ETFs that look to offer up stability or even profit as the government actions continue to unfold (read: 4 Ways to Hedge Volatility with ETFs ).

iPath S&P 500 VIX Short-Term Futures ETN ( VXX )

This ETN looks to be a huge beneficiary if the budget battle spills over to the end of the year. It tends to benefit when uncertainty rises or market risk is on the rise. The product has amassed $979 million in AUM and charges 89 bps in fees per year. The note focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility in the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second months VIX futures contracts. VXX gained over 14% over the past 10 days (see: all the Volatility ETFs here ).

SPDR Gold Trust ETF ( GLD )

Gold is often viewed as a store of value and a hedge against market turmoil. The product tracking this bullion like GLD could be an interesting pick to play the market turbulence. The fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. It is an ultra-popular gold ETF with AUM of $24.8 billion and expense ratio of 0.40%. The fund is up about 2% over the past 10 days.

iShares 20+ Year Treasury Bond ETF ( TLT )

The U.S. government bonds tracking the long end of the yield curve often carry a safe haven status. The ultra-popular long-term Treasury ETF - TLT - added nearly 4% in the same time frame. It tracks the Barclays Capital U.S. 20+ Year Treasury Bond Index and has AUM of $6.5 billion. Expense ratio came in at 0.15%. Holding 30 securities in its basket, the fund focuses on the top credit rating bonds with average maturity of 26.77 years and effective duration of 17.42 years (see: Are Treasuries the Best Safe Haven ETFs Now? ).

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SPDR-GOLD TRUST (GLD): ETF Research Reports

IPATH-SP5 VX ST (VXX): ETF Research Reports

ISHARS-20+YTB (TLT): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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