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ETFs to the Rescue as Coronavirus Wreaks Havoc

Sweta Jaiswal, FRM

The Wall Street bloodbath is continuing on the coronavirus outbreak. On Mar 5, the Dow Jones Industrial Average lost 969.58 points or 3.58%. Moreover, the S&P 500 and the Nasdaq Composite declined 3.39% and 3.10%, respectively, on the same day. The decline was led by rising coronavirus cases in the United States. Currently, there are 226 confirmed cases in the United States, with the death toll coming in at 12. Moreover, after Washington State and Florida, California Governor Gavin Newsom has declared a state of emergency.

Going on, San Francisco reported its first two cases of the coronavirus on Mar 5. Also, a cruise ship named, Grand Princess is being held off the San Francisco coast after one of its passenger succumbed to the virus.

Notably, Goldman Sachs recently 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% increase in economic growth in the fourth quarter of 2019 and 2.3% rise in 2019.

However, measures are being taken to combat the coronavirus outbreak. Taking investors by a surprise, the Federal Reserve slashed interest rates on Mar 3 in a bid to combat the impact of coronavirus. Rates were cut by a half percentage point to a target range of 1.00% to 1.25% (read: ETFs to Play as Fed Surprises With a Rate Cut).

On Mar 4, the House passed a bill assigning more than $8 billion in emergency funds to fight the coronavirus outbreak. The funding package has allocated more than $3 billion in vaccine research and $2.2 billion in measures for prevention and preparedness. The bill has been approved by the Senate as well. After getting clearance from here, the bill will be sent for President Trump’s approval to the Oval Office desk.

ETFs to Play

Given the situation, let’s 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 $3.24 billion and an expense ratio of 28 basis points (read: ETFs to Play as Fed Surprises With a Rate Cut).

iShares Core U.S. REIT ETF USRT

Real estate investment trusts (REITs) have had a good run on the bourses in 2019. A dovish Fed can be cited as the main driving factor. When interest rates drop, mortgage rates fall, making real estate or refinancing mortgages more affordable. This in turn boosts real estate sales. These funds offer outsized yields and act as good investing options when increased safe-haven trades keep yields at check.

USRT provides a low-cost access to diversified U.S. REITs and tracks the FTSE Nareit Equity REITS Index. The fund’s AUM is $1.73 billion and expense ratio is 0.08% (read: ETF Areas That Can Stay Strong Amid Covid-19 Outbreak).

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 $49.31 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: ETFs to Play as Goldman Forecasts Gold to Hit $1800).

The Utilities Select Sector SPDR Fund XLU 

The rising tensions are causing investors to seek refuge in safer investment options, with the utility sector grabbing major attention. 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 acts as a safe haven for investors during erratic stock market conditions. Moreover, utilities act as a defensive option to stay invested in more rewarding equity markets.

XLU seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Utilities Select Sector Index. The fund’s AUM is $13.19 billion and expense ratio is 0.13% (read: Yields at Record Lows: 4 Sector ETFs to Buy).