Safe-Haven ETFs Back in Demand on Trade Gyrations
Trade gyrations once again led to volatility in the stock market at the start of the final month of 2019. With stalling of trade talks between Washington and Beijing and Trump choosing to wait until the November 2020 election to strike a deal, additional U.S. tariffs on Chinese goods effective Dec 15 will likely be implemented (read: Volatility ETFs Higher on Trump's Threats, Weak Data).
Additionally, Trump is planning to restore tariffs on steel and aluminum imports from Brazil and Argentina in retaliation to currency devaluations. The administration also proposed tariffs of up to 100% on $2.4 billion worth of French products, including sparkling wine, cheese and other goods, to penalize France for a new digital services tax that has hit U.S. technology companies including Facebook FB and Google, parent of Alphabet GOOGL.
Apart from trade tensions, the latest bout of data signals that U.S. economy is slowing down, making investors jittery. The Institute for Supply Management data showed that the U.S. manufacturing sector contracted for the fourth straight month in November as new factory orders dropped to their lowest level since 2012. Additionally, U.S. construction spending unexpectedly fell in October as investment in private projects tumbled to its lowest in three years.
The series of Trump’s tariff moves and signs of weakening economy led to higher demand for safe-haven avenues or lower risk securities. Below we have highlighted five such zones and their popular ETFs where investors could stash their money amid escalating trade war.
Gold - SPDR Gold Trust ETF GLD
Gold is viewed as a safe haven in times of economic or political turmoil. The trade jitters have raised the appeal for the bullion as a store of value and hedge against market turmoil. As such, the ultra-popular product tracking this bullion like GLD could be an interesting pick. 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 $41.7 billion and heavy volume of nearly 10.3 million shares a day. It charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Is it Time to Buy Gold ETFs?).
Long-Dated Treasury - iShares 20+ Year Treasury Bond ETF TLT
The products tracking the long end of the yield curve often provide a safe haven. TLT provides exposure to long-term Treasury bonds by tracking the ICE U.S. Treasury 20+ Year Bond Index. It is one of the most popular and liquid ETFs in the bond space with AUM of $17.8 billion and average daily volume of 10.9 million shares. Expense ratio comes in at 0.15%. The fund has a Zacks ETF Rank #4 (Sell) with a High risk outlook (read: Stocks Set for a Strong 2020? Top-Ranked ETFs to Pick).
Low Volatility - iShares Edge MSCI Min Vol USA ETF USMV
These products have the potential to outpace the broader market in the event of a turmoil, providing significant protection to the portfolio. These funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these allocate more to defensive sectors that usually have a higher distribution yield than the broader markets. While there are several options, USMV with AUM of $36.3 billion and average daily volume of 4.6 million shares is the most popular ETF. The fund charges 15 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Low Volatility ETFs in Focus).
Dividend - Vanguard Dividend Appreciation ETF VIG
Dividend-paying securities are major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as these stocks offer safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. The companies that offer dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. While the dividend space has been crowded, ETFs with stocks having a strong history of dividend growth like VIG seem to be good picks. The ETF has AUM of $40.5 million and trades in volume of 985,000 shares a day on average. It charges 6 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Forget Dividend Growth Slowdown With These ETFs).
Defensive - Invesco Defensive Equity ETF DEF
Investors can look into defensive sectors like utilities, healthcare and consumer staples, which generally outperform during periods of low growth and high uncertainty. DEF seems an excellent choice as this offers exposure to companies having potentially superior risk-return profiles during periods of stock market weakness, while still offering the potential for gains during periods of market strength. The fund has accumulated $275.6 million in its asset base and sees lower volume of 22,000 shares per day on average. It charges 59 bps in fees per year and has a Zacks ETF Rank #3 with a Medium risk outlook.
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Facebook, Inc. (FB): Free Stock Analysis Report
Alphabet Inc. (GOOGL): Free Stock Analysis Report
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
SPDR Gold Shares (GLD): ETF Research Reports
iShares Edge MSCI Min Vol USA ETF (USMV): ETF Research Reports
iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
Invesco Defensive Equity ETF (DEF): ETF Research Reports
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