U.S. Markets close in 1 hr 30 mins

Phase 1 Trade Deal or Not: ETFs to Ride the Trend

Sweta Jaiswal, FRM

The 15-month-long Sino-US trade war phase has been fraught with uncertainties. Although the nations plan to sign the ‘phase 1’ trade deal by the end of November, there is still some uncertainty looming over. Per a Reuters’ report, Beijing is pushing Washington to roll back 15% tariffs on around $125 billion worth of Chinese goods that were levied on Sep 1. The tariffs cover goods like clothing items, flat-screen televisions, smart speakers and Bluetooth headphones. Moreover, China is eyeing to get 25% tariffs scrapped that were levied on around $250 billion of imports on goods — ranging from machinery and semiconductors to furniture. Notably, the United States is already considering lifting tariffs that were to be levied from Dec15.

‘Phase 1’ Deal in Details

It is believed that the preliminary agreement tackles the softer issues between the United States and China. The deal will require Beijing to purchase American farm products valuing around $40 billion to $50 billion annually. The partial accord will also fortify China’s protection for American intellectual property and grant increased access to Chinese market. Mr. Lighthizer said that the new reforms will make it easier for increased amounts of American farm products to be exported to China (read: Four Solid Reasons to Buy Small-Cap ETFs Now).

Talks have been encouraging on the currency front as well. While the United States has agreed to consider eliminating China’s name from the currency manipulators list, Beijing has acceded to increase transparency in its currency policy.

Deal Fails to Address Major Concerns

Analysts are of the opinion that the partial accord majorly answers concerns related to Beijing’s purchases of U.S. farm goods and intellectual property protections related to copyright and trademark issues. 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).

REIT ETFs

Real estate investment trusts (REITs) have had a good run on the bourses so far this year. A dovish Fed can be cited as the main factor driving the upside. When interest rate drops, mortgage rates fall, making real estate or refinancing mortgages more affordable. This in turn boosts real estate sales. Further, Sino-US trade war uncertainty, geo-political tensions, slowdown in the global economy and Brexit woes are making investors jittery, adding to the lure of these funds. This is because these funds offer outsized yields and act as good investing options when increased safe-haven trades keep yields at check. In view of this, investors can take a look at ETFs like JPMorgan BetaBuilders MSCI US REIT ETF BBRE, iShares Core U.S. REIT ETF USRT, Nuveen Short-Term REIT ETF NURE, Invesco S&P 500 Equal Weight Real Estate ETF EWRE and Schwab U.S. REIT ETF SCHH (read: Is it the Right Time to Invest in REIT ETFs? Let's Find Out).

Precious Metals ETFs

The prices of precious metals like gold and silver rise during chaotic market conditions. Geopolitical tensions, trade war uncertainty and global recession fears are currently driving demand for precious metals as a store of wealth. Additionally, rising hopes of loose monetary policies across the globe are adding to metals’ strength. In such a scenario, investors can opt for ETFs like iShares Silver Trust SLV, Invesco DB Silver Fund DBS, SPDR Gold Trust ETF GLD, iShares Gold Trust IAU and Aberdeen Standard Physical Palladium Shares ETF PALL.

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).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Aberdeen Standard Physical Palladium Shares ETF (PALL): ETF Research Reports
 
Invesco DB Silver Fund (DBS): ETF Research Reports
 
iShares Gold Trust (IAU): ETF Research Reports
 
Schwab U.S. REIT ETF (SCHH): ETF Research Reports
 
iShares U.S. Utilities ETF (IDU): ETF Research Reports
 
Utilities Select Sector SPDR Fund (XLU): ETF Research Reports
 
Fidelity MSCI Utilities Index ETF (FUTY): ETF Research Reports
 
Vanguard Utilities ETF (VPU): ETF Research Reports
 
Invesco S&P 500 Equal Weight Real Estate ETF (EWRE): ETF Research Reports
 
iShares Silver Trust (SLV): ETF Research Reports
 
SPDR Gold Shares (GLD): ETF Research Reports
 
WisdomTree U.S. Quality Dividend Growth Fund (DGRW): ETF Research Reports
 
Schwab U.S. Dividend Equity ETF (SCHD): ETF Research Reports
 
FlexShares Quality Dividend Defensive Index Fund (QDEF): ETF Research Reports
 
Barnes Group, Inc. (B) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report