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ETFs to the Rescue Amid Coronavirus-Led Volatility

Sweta Jaiswal, FRM

The coronavirus outbreak has already pushed major U.S. indices into the bear territory, ending their long bull run. Moreover, with the death toll reaching at least 41, more than 1,600 coronavirus-infected cases are being treated across the United States. Furthermore, President Trump’s month-long restriction on passenger travel from 26 European nations to the United States, except the United Kingdom, has fueled fears among market participants. In such a scenario, the latest Bloomberg survey shows that analysts are trimming their second-quarter 2020 U.S. GDP growth estimates and are predicting a contraction in U.S. economy (read: ETF Areas to Mark as Coronavirus Snaps Dow's 11-Year Bull Run).

Analysts from at least six financial firms, including the Wells Fargo & Co., BMO Financial Group, Canadian Imperial Bank of Commerce, ABN Amro, Rabobank and Berenberg, are estimating a contraction. Per the survey, annualized contraction of 0.1- 2% is being predicted for the second quarter of 2020.

Increasing coronavirus cases in the United States, excessive market volatility and falling business investments due to waning demand largely in the travel industry are some of the major reasons for the trimming of the forecasts. Analysts also believe that the coronavirus outbreak will weaken consumer spending and hit hard the consumer discretionary sector, which includes players from apparel and restaurant industries (read: Tap These Low-Volatility ETFs to Shrug Off Coronavirus Fears).

It is worth noting here that Goldman Sachs has trimmed the U.S. economic growth forecast for the first quarter of 2020 to 1.2% from 1.4% due to aggravating coronavirus concerns. The current GDP projections compare unfavorably with the 2.1% economic growth in the fourth quarter of 2019 and 2.3% rise in 2019.

ETFs to Rescue

Given the situation, let’s take a look at some ETFs that investors can follow for a smooth sail in these turbulent times.

WisdomTree U.S. Quality Dividend Growth Fund DGRW

Notably, in a low-interest rate environment, dividend investing has been the hot spot.

This fund seeks to track the investment results of dividend-paying large-cap companies with growth characteristics in the U.S. equity market. It has an AUM of $3.11 billion and an expense ratio of 28 basis points (read: ETFs to Play as Fed Surprises With a Rate Cut).

SPDR Gold Shares GLD

Price of precious metals like gold rises during chaotic market conditions as they are considered safe-haven assets.

GLD is the largest and most-popular ETF in the gold space, with AUM of $51.71 billion. The fund reflects the performance of the price of gold bullion, less the Trust's expenses. At launch, each share of this ETF represented about 1/10th of an ounce of gold. Expense ratio is 0.40% (read: Investors Love These ETF Areas Amid Virus-Led Bear Market).

iShares Edge MSCI Min Vol USA ETF USMV

Low-volatility products could be intriguing choices for those who want to stay invested in equities but like the idea of focusing on minimum volatility. Low-volatility ETFs generally tend to offer positive risk-adjusted gains, though not enormous.

While there are several options, USMV with AUM of $37.43 billion is the most popular ETF. The fund charges 15 bps in annual fees (read: Bears Grip Market: 5 Safe ETF Investing Zones).

Cambria Tail Risk ETF TAIL

This fund seeks to mitigate significant downside market risk as it invests in a portfolio of "out of the money" put options purchased on the U.S. stock market. TAIL strategy offers the potential advantage of buying more puts when volatility is low and fewer puts when volatility is high. While a portion of the fund's assets will be invested in the basket of long put option premiums, the majority of fund assets will be invested in intermediate term US Treasuries.

TAIL has amassed $87.1 million in its asset base and charges 59 bps in annual fees from investors (read: Cambria Tail Risk ETF Hits New 52-Week High).

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SPDR Gold Shares (GLD): ETF Research Reports
 
iShares Edge MSCI Min Vol USA ETF (USMV): ETF Research Reports
 
WisdomTree U.S. Quality Dividend Growth ETF (DGRW): ETF Research Reports
 
Cambria Tail Risk ETF (TAIL): ETF Research Reports
 
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