Best ETF Strategies For Trump Uncertainty
Zacks Investment Research | May 18, 2017 12:07AM ET
Global stocks went into a tailspin on Wednesday, with U.S. stocks witnessing the impeachment of President Donald Trump.
As a result, global equities had a bloodbath with the S&P 500-based ETF SPDR S&P 500 ETF Trust (AX:SPY) , SPDR Dow Jones Industrial Average (SI:SPDR) ETF Trust (V:DIA) and PowerShares QQQ Trust QQQ losing about 1.8%, 1.7% and 2.5%, respectively, on May 17, 2017. Another reason that has possibly triggered this acute sell-off is the fact that U.S. stocks have been accused of overvaluation in recent times by many analysts.
Emerging market ETF iShares MSCI Emerging Markets ETF (NYSE:EEM) U.S. dollar plunged to lowest level since November. The yield on the 10-year benchmark U.S. Treasury nosedived to 2.22% on May 17 from 2.33% recorded the earlier day.
Against this backdrop, the investing world may be at a loss of ideas on where to park money for smart gains. For them, below we detail possible asset class movements and the likely smart ETF bets, if Trump trade wavers over the coming days.
Stir Toward Safe-Haven Bets
As risk-on trade subsides, the common investing practice is to turn to safe-haven trades. Dimming prospects of a sooner-than-expected Fed rate hike (thanks to some downbeat economic indicators released lately) and political concerns may lead safe-haven asset U.S. Treasury valuation and the related ETF iShares 20+ Year Treasury Bond (NASDAQ:TLT) ETF TLT to soar.
Gold is often viewed as a safe haven asset to protect against financial risks, and may perform well on heightened market volatility. Since the metal’s pricing is normally inversely related to the greenback, SPDR Gold Trust (P:GLD) ETF (V:GLD) may get a fresh lease of life (read: Follow Gundlach's Insight with These ETFs ).
Safe currency ETFs like CurrencyShares Japanese Yen ETF Safe Haven ETFs to Evade Geopolitics & Weak Economic Data ).
Safe Sectors Will Likely Sizzle Too
Investors should note that amid Wednesday’s bloodbath, utility ETFs like Utilities Select Sector SPDR Fund VNQ (up 0.4%) were actually in the green. These sectors are high yielding and perform better in a low rate environment. So, these could prove to good buys if the market is gripped by Trump uncertainty.
Visit Abroad
Agreed, the ripple effects of uncertainty in the U.S. market will not leave foreign securities to stay in peace, but one should not forget that several international economies are looking up lately. Europe and the emerging markets are on a tear in fact on a pickup in economic activity and better valuations (read: Do Europe ETFs Have More Upside? ).
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So, ETFs like ProShares MSCI Europe Dividend Growers ETF DGRE could be decent bets.
Drive for Dividends
High dividend ETFs may also be helpful in this perspective as higher current income can make up for capital losses to some extent. U.S.-based dividend ETFs including Vanguard High Dividend Yield ETF 2 Excellent Dividend Growth ETFs in Focus ).
Get Ready for Low Volatility & Defensive ETFs
If volatility levels crop up, investors can deal with this in various ways. First comes low volatility U.S. ETFs like SPDR S&P Low Volatility ETF EUMV .
The second way to fight volatility is with defensive ETFs like U.S Market Neutral Anti-Beta Fund (NYSE:BTA) and AdvisorShares Active Bear ETF VIXY . Notably, as the name suggests, volatility products are quite rowdy in nature and thus suit investors with a short-term notion.
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