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Investors Love These ETF Areas Amid Virus-Led Bear Market

Sanghamitra Saha

Wall Street’s 11-year-old bull market came to a halt on Mar 12 as all three key U.S. equity gauges — the S&P 500, the Dow Jones and the Nasdaq Composite — are now in a bear market. The three indexes lost about 9.5%, 10% and 9.4% on Mar 12, respectively, despite the Fed’s $1.5-trillion liquidity injection into short-term lending markets.

Global markets have been shaky since the start of March but the pain aggravated on Mar 11 after WHO declared the coronavirus outbreak as a global pandemic. Meanwhile, President Trump enacted a month-long travel ban from Europe (except the United Kingdom) to contain the spread of the virus, dealing a major blow to global trade.

Investors should also note that the Dow Jones recorded the steepest single-day slump on Mar 12 since 1987. “The entry into bear market territory was the fastest on record for the S&P and Nasdaq,” as indicated by the Dow Jones Market Data Group.

With people on quarantine and activities slowly coming to a halt, recession fears are tightening its grip on markets. Oil prices too have been on a freefall, with United States Oil Fund LP USO losing 39.5% in the past month (as of Mar 13). United States Brent Oil Fund LP BNO was down 41% in the same time period.

ETF Areas In Favor Amid Market Downturn

Against this backdrop, one must be on the lookout for ETF areas amassing assets amid such a severe market downturn. Below we highlight a few such areas that garnered a solid asset base during Mar 5-11. Notably,the S&P 500 lost 12.4% during this period. The Dow Jones was off 13.1% and the Nasdaq Composite retreated 11.8%.

Short-Term U.S. Treasuries

Safe-haven trade and an emergency Fed rate cut boosted the buying of U.S. treasuries which dragged down bond yields. Notably, benchmark U.S. treasury yield touched a record low of 0.54% on Mar 9.

Investors mainly flocked to short-term U.S. treasuries. These bonds have lower default risks than the longer ones. Moreover, as on Mar 9, one-month U.S. treasury yielded (0.57%) higher than 10-year bonds (0.54%). However, the spread between 10-year and one-month yield widened to 40 bps on Mar 11.

Overall, ETFs like iShares 1-3 Year Treasury Bond ETF SHY, iShares Short Treasury Bond ETF SHV, SPDR Portfolio Short Term Treasury ETF SPTS and SPDR Bloomberg Barclays 1-3 Month T-Bill ETF BIL hauled in about $2.43 billion, $1.55 billion, $1.33 billion and $1.24 billion in assets, respectively, during Mar 5 to Mar 11, per etf.com.

S&P 500

Many market watchers are of the view that the latest selloff is a ‘gross overreaction’ (per Morningstar). JPMorgan’s chief U.S. equity strategist said in a note to clients that “the market has gone ahead and priced in too severe of an adverse scenario.”

Such words of assurance and undervaluation of equities may be viewed as a lucrative entry point to the S&P 500 by some investors. After all, there has been substantial monetary easing globally. Fiscal stimulus in small measures is being rolled out. The U.S. economy was on a decent footing before the virus attacked.

All these fiscal and monetary support should improve the risk/reward of investing, per JPMorgan. Vanguard S&P 500 ETF VOO and iShares Core S&P 500 ETF IVV fetched about $1.72 billion and $1.17 billion in assets (read: Is the Virus-Induced Stock Selloff Overdone? ETFs to Buy Now).

Gold

Who can miss the traditional safe-haven asset? SPDR Gold Trust GLD raked in about $998.8 million. In the present low-rate environment, gold should do well. Also, there are talks that inflation will creep up soon. And gold is viewed as a hedge against inflation as well (read: TIPS ETFs in a Sweet Spot: Here's Why).

Consumer Staples

It is a non-cyclical sector and is likely to be less hammered by any market crash. The sector can emerge as a true safe haven amid the latest crisis as even people on self-quarantine need daily essentials. In 2008 crisis too, Consumer Staples Select Sector SPDR Fund XLP lost just 17.1%, way lesser than many sector ETFs and the S&P 500. No wonder,XLP is in investors favor in the current downturn too andhas amassed about $879.8 million during Mar 5-11, 2020 (read: Beat Virus With 2 Sector ETFs & Stocks That Survived 2008 Crisis).

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