Though the broad U.S. stock market has easily outweighed geopolitical concerns and are hovering near its all-time high, the latest series of events might point to some volatility in the coming weeks.
This is especially true as the downing of the Malaysian passenger plane near the Russian/Ukrainian border intensified tensions in these two countries. The jet was shot a day after the U.S. and European Union tightened sanctions against Russia due to its annexation of Crimea (read: Russian Sanctions and Malaysian Plane Crash Put These ETFs in Focus).
Further, the violence in Gaza has escalated after Israel launched ground attacks in Gaza Strip. The hostility entered its bloodiest phase in the weekend after two weeks of fighting between Palestinian and Israeli militaries.
The uncertainty in Ukraine and the Middle East might shake the complacency in the stock market, compelling investors to dump the riskier assets and take flight to safety at least for the near term. Apart from these tensions, sluggish recovery in Euro zone and still muted economic growth in U.S. and China are weighing upon the market.
In fact, the ETF tracking the S&P 500 (SPY) pulled out over $5 billion in AUM over the last three trading days following the plane crash while the small cap iShares Russell 2000 (IWM) saw an outflow of nearly $742 million.
In such a backdrop, we have highlighted four safe haven ETFs that investors should consider in their portfolio, especially if the turmoil in Ukraine and Gaza continues to escalate. These products will likely benefit from the crisis and would be in focus in the weeks ahead.
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 to play in the 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 the ultra-popular gold ETF with AUM of over $33.9 billion and heavy volume of nearly 7.1 million shares a day. It charges 40 bps in fees per year from investors. The ETF gained about 1.1% over the last three days and has a Zacks ETF Rank of 3 or ‘Hold’ rating with Medium risk outlook (read: Will Gold ETFs Continue to Shine?).
CurrencyShares Japanese Yen Trust (FXY)
Yen is considered a safe haven currency in times of uncertainty. Investors could tap this via FXY as this ETF appears a great way to play a future rise in the yen relative to the U.S. dollar. It tracks the movement of the yen relative to the U.S. dollar, net of the Trust expenses, which are expected to be paid from the interest earned on the deposited Japanese yen.
The fund charges 40 bps a year in fees and sees a moderate volume of roughly 137,000 shares per day. The product has accumulated $81.7 million in its asset base and added 0.30% in the same period. Though the short-term outlook looks promising on the ongoing turmoil, the long-term outlook is negative given the Zacks ETF Rank of 4 or ‘Sell’ rating with High risk outlook. This suggests that the uncertainty in the market might not last longer (see: all the Currency ETFs here).
iPath S&P 500 VIX Short-Term Futures ETN (VXX)
While volatility products have been terrible performers over medium and long term due to a contangoed market and a steep roll cost, VXX seem to be decent performer adding about 4.5% in the past three sessions. The ETN focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility of the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second month VIX futures contracts.
The note has amassed nearly $1.1 billion in AUM and charges 89 bps in fees per year. Volume is extremely solid as it exchanges more than 33 million shares per day.
iShares 20+ Year Treasury Bond ETF (TLT)
The products tracking the long end of the yield curve often act as a safe haven. TLT provides exposure to the long-term Treasury bonds by tracking the Barclays Capital U.S. 20+ Year Treasury Bond Index. It is one of the most popular and liquid ETFs in the bond space with AUM of $3.4 billion and average daily volume of more than 7.5 million shares. Expense ratio came in at 0.15% (read: 3 Long Term Bond ETFs Surging as Rates Stay Low).
Holdings 24 securities in its basket, the fund focuses on the top credit rating bonds (AA+ and higher). The average maturity comes in 27.08 years and the effective duration is 16.86 years. The product gained 1.4% following the downing of a Malaysian Airlines aircraft and the ongoing violence in Gaza. TLT has a Zacks ETF Rank of 3 with High risk outlook.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Read the analyst report on GLD
Read the analyst report on VXX
Read the analyst report on TLT
Read the analyst report on FXY
Read the analyst report on SPY
Read the analyst report on IWM
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
- Utility Industry