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Bears Grip Market: 5 Safe ETF Investing Zones

Sweta Killa

Weeks of panic selling given the spread of coronavirus has sent the broader U.S. stock market into bear territory (decline of 20% from the latest peak) in less than a month from peak. This has ended the 11-year bull market. The sluggish trading is likely to continue given as the latest developments have resulted in deterioration of fundamentals (read: 3 Safe ETFs for Volatile Markets).

The World Health Organization has declared the outbreak a pandemic. The disease has spread to 114 countries, infecting more than 118,000 people worldwide and causing over 4,100 deaths. President Donald Trump has suspended all travel from Europe to the United States for 30 days beginning Mar 13 midnight, with the exception of the United Kingdom.

In the wake of contagion fears, the Organization for Economic Cooperation and Development (OECD), ratings agency Moody’s and other financial institutions or analysts have lowered their global growth forecasts over the last few days. This has resulted in higher demand for safe haven avenues or lower-risk securities. Below we have highlighted five such zones and their popular ETFs where investors could stash their money amid the market turmoil.

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 $51.7 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: ETFs to the Rescue as Coronavirus Wreaks Havoc).

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

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 $23.4 billion and average daily volume of 12 million shares. Expense ratio comes in at 0.15%. The fund has a Zacks ETF Rank #3 with a High risk outlook (read: Treasury ETFs Hit New Highs as Coronavirus Fears Spread).

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 $37.4 billion and average daily volume of 4.8 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 (read: Tap These Low-Volatility ETFs to Shrug Off Coronavirus Fears).

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 $289.3 million in its asset base and sees lower volume of 27,000 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 $40.3 billion and trades in volume of 1.4 million shares a day on average. It charges 6 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Follow Warren Buffett With These ETF Strategies).

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