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ETF Strategies to Tackle the Trade War Uncertainty

Sweta Jaiswal, FRM

Investors are keenly awaiting a Sino-US ‘phase 1’ trade deal. However, it is being believed that the trade talks have hit a snag.  Per a Wall Street Journal report, China is refusing to mention a figure for the farm purchases annually on the agreement. President Trump had earlier announced that China had agreed to purchase up to $50 billion of soybeans, pork and other farm products from the United States annually (read: Phase 1 Trade Deal or Not: ETFs to Ride the Trend).

Moreover, going by a CNBC article, United States is demanding a stricter approach by China to regulate intellectual property protections and control forced technology transfers. Moreover, Trump’s latest warnings to raise tariffs if both sides fail to reach a deal have made investors jittery.

It is being believed that if both sides fail to reach a deal, the United States might impose 15% tariffs on around $156 billion worth of China-made consumer goods starting Dec 15. The tariffs might be imposed on a "4B" list of goods covering items like video game consoles and computer monitors.

Moreover, it is believed that the preliminary agreement majorly tackles the softer issues like U.S. farm goods and intellectual property protections related to copyright and trademark. However, it fails to resolve conflicts related to the China government’s providing of industrial subsidies to state-owned firms. Per a Reuters’ report, it is being speculated that due to inconsistencies in China’s new foreign investment law, it will not be able to provide proper access to its financial services market.

Given the uncertain times, let’s take a look at some ETF strategies that investors can follow.

Dividend ETFs

The appeal of dividend ETFs has increased this year on investors’ quest for higher yields. This is especially true against the backdrop of falling yields, easing monetary policy globally and market uncertainty triggered by trade uncertainties, geopolitical tensions and global growth slowdown concerns. Moreover, central banks across the globe are taking steps to shore up slowing economies that will hurt yields. Against this backdrop, let’s take a look at some dividend ETFs like WisdomTree U.S. Quality Dividend Growth Fund DGRW, FlexShares Quality Dividend Defensive Index Fund QDEF), WBI Power Factor High Dividend ETF WBIY and Schwab US Dividend Equity ETF SCHD.

Low-Volatility ETFs

Increasing demand for funds with “low volatility” or “minimum volatility” is being observed. Per a Wall Street Journal article, the 57 ETFs and mutual funds following the low-volatility strategy have witnessed an inflow of around $31.53 billion over the past year and possess assets worth $101.57 billion as of Sep 30. These seemingly safe products generally do not surge in a bull market but offer protection in unpredictable conditions. Providing more stable cash flow than the overall market, these funds are less cyclical in nature. Here are some options, iShares Edge MSCI Min Vol USA ETF USMV, Invesco S&P 500 Low Volatility ETF SPLV, iShares Edge MSCI EAFE Minimum Volatility ETF EFAV, iShares Edge MSCI Min Vol Global ETF ACWV, Invesco S&P 500 High Dividend Low Volatility ETF SPHD (read: Here's Why it is the Right Time to Buy Low-Volatility ETFs).

Utility ETFs

The year 2019 has been quite promising for the utility sector. The sector is among the most stable for the long term as its players are likely to offer decent returns, irrespective of market conditions. It is known for its non-cyclical nature and often acts as a safe haven for investors. Against this backdrop, investors can opt for Utilities Select Sector SPDR Fund XLU, Vanguard Utilities ETF VPU, iShares U.S. Utilities ETF IDU and Fidelity MSCI Utilities Index ETF FUTY (read: Top Performing Utility ETFs This Year).

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iShares Edge MSCI Min Vol EAFE ETF (EFAV): ETF Research Reports
 
Fidelity MSCI Utilities Index ETF (FUTY): ETF Research Reports
 
iShares U.S. Utilities ETF (IDU): ETF Research Reports
 
Vanguard Utilities ETF (VPU): ETF Research Reports
 
Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports
 
iShares Edge MSCI Min Vol Global ETF (ACWV): ETF Research Reports
 
iShares Edge MSCI Min Vol USA ETF (USMV): ETF Research Reports
 
WisdomTree U.S. Quality Dividend Growth Fund (DGRW): ETF Research Reports
 
Utilities Select Sector SPDR Fund (XLU): ETF Research Reports
 
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD): ETF Research Reports
 
Schwab U.S. Dividend Equity ETF (SCHD): ETF Research Reports
 
WBI Power Factor High Dividend ETF (WBIY): ETF Research Reports
 
FlexShares Quality Dividend Defensive Index Fund (QDEF): ETF Research Reports
 
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