U.S. Markets closed

5 ETFs to Profit From Rise in Middle East Tension

Sweta Killa

Geopolitical tensions flared up once again with the escalation in the Middle East conflict that drove demand for safe haven ETFs. This is especially true after the top Iranian commander Qasem Soleimani was killed in a U.S. drone strike near the Baghdad international airport last week.

Iran’s President Hassan Rouhani vowed revenge and said it would no longer abide by any limits on its enrichment of uranium. On the other hand, President Donald Trump said the United States had identified 52 Iranian sites that would be hit “very hard” if Tehran retaliates. In the latest developments, Trump threatened Tehran that America will hit Iran "harder than they have ever been hit before" if it carries out retaliatory attacks or expels U.S. troops from the country (read: Iraq Attack: Sector ETF Winners and Losers).

The move has sparked fears of a protracted conflict in the region. This has resulted in higher demand for safe haven avenues or lower-risk securities. Below we have highlighted six such zones and their popular ETFs where investors could stash their money amid the rise in Middle East tensions.

Gold - 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 in the current market turbulence. The fund tracks the price of gold bullion measured in U.S. dollars, and is kept in London under the custody of HSBC Bank USA. It is the ultra-popular gold ETF with AUM of $44.6 billion and heavy volume of nearly 9.5 million shares a day. It charges 40 bps in fees per year from investors. The product has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Gold to Shine in 2020: ETFs to Consider).

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

Though the fund has an unfavorable Zacks ETF Rank #4 (Sell) with a High risk outlook, the geopolitical tension could bring some relief. 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 $17.7 billion and average daily volume of 10.6 million shares. Expense ratio comes in at 0.15%.

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 $37.3 billion and average daily volume of 4.4 million shares is the most popular ETF. The fund charges 15 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Most Loved and Hated ETFs of 2019).

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 $284.8 million in its asset base and sees lower volume of 20,000 shares per day on average. It charges 55 bps in fees per year 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 $42.2 billion and trades in volume of 1 million shares a day on average. It charges 6 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 5 Dividend ETFs That Beat S&P 500 in 2019).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>