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Renewed Trade Spat Grips Market: 6 ETF Buying Zones

As previously announced, President Donald Trump unveiled the list of Chinese goods targeted for 25% tariff, leading to retaliation from China with duties of “the same scale and strength.” The move has rekindled trade war worries between the two biggest economies.

Tariff Talks Worsen

Trump announced tariffs on $50 billion of Chinese imports to be applied in two phases. The first round of tariff will apply to 818 imported Chinese goods worth $34 billion, including auto, electric cars, aerospace, communications tech, new materials and robotics, and will go into effect on Jul 6. The rest $16 billion is under review with expected tariff on 284 products, which will include semiconductors, and a broad range of electronics and plastics related to China's Made in China 2025 strategic plan (read: 7 Exciting ETFs Ways to Profit From Ongoing Trade Spat).

In retaliation, the second-largest country announced that it will slap a 25% tariff on 659 American goods for a similar amount and targets agricultural products, autos and seafood. The list of goods was more than six-fold from an earlier version released in April. Penalties on 545 American goods worth $34 billion will be effective Jul 6. The implementation date for the remaining 114 products will be announced later and will include chemical products, medical equipment and energy products.

Market Impact

The developments resulted in rough trading in global stock market in today’s session, sending shockwaves across the emerging markets. As a result, investors are dumping riskier assets and bracing the lower risk securities. Below, we have highlighted six such zones and their popular ETFs where investors’ could stash their money amid escalating trade war fears:

Gold - SPDR Gold Trust ETF GLD

The threat of global war has raised the appeal for the bullion as a store of value and hedge against market turmoil. The ultra-popular product tracking this bullion like GLD could be an interesting pick in 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 AUM of $35.7 billion and heavy volume of nearly 7.5 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.

Long-Dated Treasury - iShares 20+ Year Treasury Bond ETF TLT

Though the fund has been out of investors’ favor due to rising yields and has an unfavorable Zacks ETF Rank #4 (Sell) with a High risk outlook, the deepening political turmoil could bring back some lure. This is because 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 $6.9 billion and average daily volume of 9.1 million shares. Expense ratio comes in at 0.15% (read: Fed Turns Hawkish: ETF Areas to Win).

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 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 $14.8 billion and average daily volume of 1.9 million shares is the most popular ETF. The fund charges 15 bps in annual fees and has a Zacks ETF Rank #3 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. The ETF has AUM of $28.4 million and trades in volume of 827,000 shares a day on average. It charges 8 bps in annual fees. It has a Zacks ETF Rank #2 (Buy) and a Medium risk outlook (read: 4 Dividend Growth ETFs to Watch as Global Dividends Top).

Small Cap - iShares Russell 2000 ETF IWM

Investors could 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. The ultra-popular IWM having a Zacks ETF Rank #3 and a Medium risk outlook could be the best pick. It has AUM of $47.8 billion and average trading volume of 22.2 million shares. It has 20 bps in expense ratio (read: Fund Managers Bullish on America in June: 6 ETFs to Profit).

Defensive - Invesco Defensive Equity ETF DEF       

Investors could rotate 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 the 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 $175.7 million in its asset base and sees lower volume of 13,000 shares per day on average. It charges 60 bps in fees per year and has a Zacks ETF Rank #2 with a Medium risk outlook.

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ISHARS-20+YTB (TLT): ETF Research Reports
GOLD (LONDON P (GLD): ETF Research Reports
ISHARS-R 2000 (IWM): ETF Research Reports
GUGG-DEF EQUITY (DEF): ETF Research Reports
VANGD-DIV APPRC (VIG): ETF Research Reports
ISHARS-MS US MV (USMV): ETF Research Reports
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