After a strong start to the year, Wall Street got caught in a nasty web of trading triggered by hawkish Fed, a spike in the Omicron COVID-19 variant cases and high inflation. A series of disappointing earnings from big banks and growing geopolitical tension added to the chaos.
Given the myriad of woes, investors should stash their cash in ETFs of some safe investing zones. These are SPDR Gold Trust (P:GLD) ETF GLD, iShares 20+ Year Treasury Bond (NASDAQ:TLT) ETF TLT, iShares Edge MSCI Min Vol USA ETF USMV, Vanguard Dividend Appreciation ETF VIG and AGFiQ US Market Neutral Anti-Beta Fund BTAL.
The Fed signal of raising interest rates as soon as March is the major culprit behind the stock market decline. This is especially true as the speculation has pushed the bond yields higher, compelling investors to rotate out of high-growth areas of the market in favor of safer bets. In a sign of growing geopolitical tension, concern over potential Russian military action against Ukraine has increased after NATO put forces on standby and reinforced eastern Europe with more ships and fighter jets.
Meanwhile, U.S. business activity grew at its slowest pace in 18 months in January, hit by the surging infections of the Omicron COVID variant.
Notably, the S&P 500 was down nearly 11% from its record set on Jan 4 at one point yesterday, while the Dow Jones was down about 10% from its high. The tech-heavy Nasdaq Composite extended the recent losing streak from its November high to nearly 18%. The small-cap Russell 2000 Index approached a bear market after plunging almost 20% from its peak (read: Cybersecurity ETFs Win in Nasdaq's Worst Week Since 2020).
We have highlighted the ETFs in detail below:
Gold - SPDR Gold Trust ETF (GLD)
Gold is viewed as a safe haven in times of economic or political turmoil. A slew of concerns has 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. SPDR Gold Trust ETF 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 $60 billion and heavy volume of about 7.4 million shares a day.
SPDR Gold Trust ETF charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Long-Dated Treasury - iShares 20+ Year Treasury Bond ETF (TLT)
The products tracking the long end of the yield curve often provide a haven. iShares 20+ Year Treasury Bond ETF tracks the ICE (NYSE:ICE) U.S. Treasury 20+ Year Bond Index, holding 33 securities in its basket. The fund has an average maturity of 26.06 years and an effective duration of 19.13 years. iShares 20+ Year Treasury Bond ETF charges 15 bps in annual fees.
TLT is one of the most popular and liquid ETFs in the bond space, with AUM of $16 billion and an average daily volume of 17 million shares (read: ETF Strategies to Follow Amid Rising Yields).
Low Volatility – iShares Edge MSCI Min Vol USA ETF (USMV)
These products have the potential to outpace the broader market providing significant protection to the portfolio. These funds include more stable stocks that have experienced the least price movement. Further, these allocate more to defensive sectors with a higher distribution yield than the broader markets. While there are several options, iShares Edge MSCI Min Vol USA ETF with AUM of $28.4 billion and an average daily volume of 3.5 million shares is the most popular ETF. The fund offers exposure to stocks that have lower volatility characteristics relative to the broader U.S. equity market.
iShares Edge MSCI Min Vol USA ETF tracks the MSCI USA Minimum Volatility Index, holding 172 stocks in its basket. The product charges 15 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Dividend – Vanguard Dividend Appreciation ETF (VIG)
The dividend-paying securities are the 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 these 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. 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. It holds 267 stocks in its basket with AUM of $65.1 million.
Vanguard Dividend Appreciation ETF trades in volume of 2 million shares a day on average and charges 6 bps in annual fees. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Defensive ETF Strategies to Tackle Wall Street’s Dull Start to 2022).
Long/Short – AGFiQ US Market Neutral Anti-Beta Fund (BTAL)
AGFiQ US Market Neutral Anti-Beta Fund has the potential to generate positive returns regardless of the direction of the stock market as long as low-beta stocks outperform high beta stocks. It invests in low-beta securities and, at the same time, shorts high-beta stocks of approximately equal dollar amounts within each sector. AGFiQ US Market Neutral Anti-Beta Fund seeks to deliver the spread return between low and high-beta stocks. This can easily be done by tracking Dow Jones U.S. Thematic Market Neutral Low Beta Index.
AGFiQ US Market Neutral Anti-Beta Fund has AUM of $126.8 million and an expense ratio of 2.53%. It trades in an average daily volume of 787,000 shares.
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iShares 20 Year Treasury Bond ETF (TLT): ETF Research Reports
SPDR Gold Shares (NYSE:GLD): ETF Research Reports
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research Reports
AGFiQ US Market Neutral AntiBeta ETF (BTAL): ETF Research Reports
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