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Growth Worries Resurface as Bulls Turn 10: 5 ETF Buying Zones

Sweta Killa

Renewed global growth worries once again took toll on investors’ sentiment as the bull market hit its 10th anniversary. This is especially true following the surprise European Central Bank (ECB) move, wherein it cut its economic growth forecast for this year and pledged to hold off on any interest rate increases until at least the end of the year.

The ECB also announced new measures to support a slowing economy, including a round of long-term loans to European financial institutions. For this, it launched its third iteration of a program of cheap loans — known as targeted long-term refinancing operations (TLTROs) — to eurozone banks.

Additionally, the optimism over the U.S.-China trade seems to be fading with no concrete deal reached till yet. Fears are emerging that the two world’s largest economy may not be as close to a trade deal as President Donald Trump had suggested. The worries have been aggravated by the latest Chinese trade data, which has sent an alarming bell for the global stock market (read: Bet on Surging China Stocks With These Leveraged ETFs).

China’s exports tumbled 20.7% year over year in February, the largest decline in three years, while imports fell 5.2% for the third straight month despite a spate of support measures. The data points to a further slowdown in the world’s second largest economy, brushing away the positive momentum in China’s stock market.

The decelerating economic growth in Europe and China could lead to global consequences and resulted in weak global economy. This could prove to be a huge drag to U.S. economic growth. Given the latest economic developments, investors should stash their cash in some safe investing zones. We have highlighted them below and their ETFs:

Gold - SPDR Gold Trust ETF GLD

Gold is viewed as a safe haven in times of economic or political turmoil. The bouts of negative news have raised the appeal for the bullion as a store of value and hedge against market turmoil. As such, the ultra-popular product tracking this bullion like GLD could be an interesting pick. The fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. It is an ultra-popular gold ETF with AUM of $31.7 billion and heavy volume of nearly 8.5 million shares a day. It charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Can Gold ETFs Continue to Shine in 2019?).

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

Though the fund has an unfavorable Zacks ETF Rank #5 (Strong Sell) with a High risk outlook, the economic turmoil coupled with dovish Fed could bring back some lure. 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 $10.4 billion and average daily volume of 9.1 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 $23.5 billion and average daily volume of 4.2 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: Low-Volatility ETFs in the Pink Despite a Bull Market).

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 $32.2 million and trades in volume of 1.3 million shares a day on average. It charges 8 bps in annual fees. It has a Zacks ETF Rank #1 (Strong Buy) and a Medium risk outlook (read: 5 Hot Dividend ETFs Worth Buying Now).

Small Cap - iShares Russell 2000 ETF IWM

Investors could seek shelter in a basket of small-cap stocks that have less international exposure and generate most of their revenues from the domestic market. These pint-sized stocks are less vulnerable to trade war or any other political issues and could better insulate investors against global headwinds. The ultra-popular IWM having a Zacks ETF Rank #3 and a Medium risk outlook could be the best pick. It has AUM of $41.2 billion and average trading volume of 25.4 million shares. It has 19 bps in expense ratio.

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iShares Edge MSCI Min Vol USA ETF (USMV): ETF Research Reports
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
SPDR Gold Shares (GLD): ETF Research Reports
iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
iShares Russell 2000 ETF (IWM): ETF Research Reports
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