Tensions between the United States and China escalated after the U.S. implemented a 10% tariff on Chinese imports on Feb. 4. In response, China retaliated with tariffs on U.S. products, including a 15% levy on coal and liquefied natural gas (LNG) and a 10% tariff on crude oil, agricultural machinery and automobiles effective Feb. 10.
Additionally, China initiated an antitrust investigation into Google GOOGL and placed export controls on critical minerals like tungsten, which are essential for various industries. The ministry also said it was adding two American firms — biotech company Illumina ILMN and fashion retailer PVH Group, owner of Calvin Klein and Tommy Hilfiger — to its unreliable entities list, saying they “violated normal market trading principles.”
The tit-for-tat tariffs have ignited fears of a trade war, prompting investors to dump riskier assets and take a flight to safety at least for the near term (read: Trump's Tariffs Shake Markets: ETFs to Watch).
Meanwhile, the tensions with the European Union (EU) have also increased. Trump said that tariffs on the EU would be imposed “soon” as it does not take American cars and farm products. In fact, it takes almost nothing while the “US buys millions of cars, tremendous amounts of food and farm products.”
Against such a backdrop, investors could stash their cash in the following ETFs that offer stability or even profit as trade war threats loom:
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 in the wake of the current 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 an AUM of $76.5 billion and a heavy volume of about 6 million shares a day. SPDR Gold Trust ETF charges 40 bps in fees per year from investors. The product has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Gold ETFs Soar to New Highs on Tariff Turmoil: What's Ahead?).
iShares Russell 2000 ETF (IWM)
Investors can also seek shelter in a basket of small-cap stocks that have less international exposure and generate most of their revenues from the domestic market. These pint-sized stocks are less vulnerable to trade war or any other political issues and could better insulate investors against Trump’s trade-protectionism policy. While the small-cap space is flooded with ETFs, the ultra-popular IWM, having a Zacks ETF Rank #2 (Buy) and a Medium risk outlook, could be the best choice. It provides exposure to a broad basket of 1,966 stocks by tracking the Russell 2000 Index and charges 19 bps in expense ratio. The ETF has amassed $74.6 billion in its asset base and trades in heavy volume of 23.6 million shares a day on average.
iShares 20+ Year Treasury Bond ETF (TLT)
The trade war threats have raised the appeal for U.S. government bonds tracking the long end of the yield curve. These products often carry a safe haven status. As such, the ultra-popular long-term Treasury ETF – TLT – seems a better pick at present despite its unfavorable Zacks Rank #4 (Sell). It tracks the ICE U.S. Treasury 20+ Year Bond Index and has AUM of $6.5 billion. Holding 46 securities in its basket, the fund focuses on the top credit-rating bonds with an average maturity of 25.75 years and an effective duration of 15.98 years. Expense ratio comes in at 0.15% and average daily volume is also heavy at around 32.3 million shares.
iShares MSCI USA Min Vol Factor ETF (USMV)
Low volatility ETFs like USMV have the potential to outpace the broader market in bearish-to-neutral market conditions, providing significant protection to the portfolio. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio and thus lose less when the market is falling. USMV tracks the MSCI USA Minimum Volatility Index, holding 182 stocks in its basket. With AUM of $23.5 billion, the product charges 0.15% in expense ratio and trades in solid average daily volume of 1.6 million shares. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: Low Volatility ETFs to Bet on Amid Market Turmoil).
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 the best of both worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. 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 an AUM of $89.4 billion and trades in a volume of 1.2 million shares a day on average. It charges 5 bps in annual fees and sports a Zacks ETF Rank #1.
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Get it free >>iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
Illumina, Inc. (ILMN) : Free Stock Analysis Report
SPDR Gold Shares (GLD): ETF Research Reports
iShares Russell 2000 ETF (IWM): ETF Research Reports
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
iShares MSCI USA Min Vol Factor ETF (USMV): 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.
