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12 U.S. Sector ETFs to Play in Case of an Escalating Trade War

This article was originally published on ETFTrends.com.

If the U.S. is stuck in an escalating trade war, stocks and sector-related ETFs with the highest domestic sales exposure in the U.S. should begin to stand out.

"If trade tensions continue to rise and new tariffs are proposed and implemented, stocks with the highest domestic sales exposure should outperform," Goldman Sachs chief U.S. equity strategist David Kostin and others said in research note, CNBC reports.

In 2017, S&P 500 companies generated 30% of their overall revenues from international sources, including 8% of the total from Asia Pacific and 10% from Europe. Comparing the revenue generated on a sector-by-sector basis, the information technology segment held the highest international footprint at 60%, followed by materials at 19%, according to Goldman Sachs.

"Top-line growth for these firms will likely come under pressure if China imposes retaliatory tariffs. Such tariffs would drive up the price paid by consumers in Greater China," according to the Goldman Sachs report, referring to the region that includes mainland China, Taiwan and special administrative regions like Hong Kong.

U.S. investors who are wary of the negative effects of an escalating trade war could look to S&P 500 stocks with the highest domestic revenue exposure, such as those found in the telecommunications, consumer, financials and health care sectors.

12 Targeted ETF Plays

To gain targeted exposure to these market segments, investors may consider sector ETF plays to pick and choose their positions. For example, investors seeking broad exposure to the telecom space can look to a number of ETF options, including the iShares U.S. Telecommunications ETF (IYZ) , Vanguard Telecommunication Services ETF (VOX) and Fidelity MSCI Telecommunication Services Index ETF (FCOM) .

To access the consumer sectors, investors can look to retail ETFs like the SPDR S&P Retail ETF (XRT) and Invesco Dynamic Retail Portfolio (PMR) .

Financial sector-specific ETF plays include options like the Financial Select Sector SPDR (NYSEArca: XLF) , Fidelity MSCI Financials Index ETF (FNCL) , iShares U.S. Financials ETF (IYF) and Vanguard Financials ETF (VFH) .

Lastly, the Fidelity MSCI Health Care Index ETF (FHLC) , Health Care Select Sector SPDR (XLV)   and Vanguard Health Care ETF (VHT) provide broad exposure to the healthcare segment.

"The most domestic-facing stocks typically outperform as US growth strengthens relative to the rest of the world. The recent trend of stronger US GDP growth has helped domestic-facing stocks outperform foreign-facing stocks," the Goldman Sachs analysts added.

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