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Political Drama in Europe to Push Safe Haven ETFs Higher

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After a short relief, the global stock market faces woes emanating from Europe.

The latest development in Italy has increased the prospect of another election, reigniting fears of a populist rise in Europe once again. The market anticipates that repeated election may become a de facto referendum on Italian membership of the currency bloc and the country's role in the European Union. The move could trigger fears of a Eurozone meltdown, affecting demand for emerging market goods and services. Meanwhile, Spain is also facing a heightened risk of a snap election as Prime Minister Mariano Rajoy will face a vote of confidence in his leadership on Jun 1.

The developments prompted a second consecutive day of heavy selling in European financial markets. The contagion has spread to other markets across the globe as well.

Coming to America, President’s Donald Trump anti-trade policies are threatening global economic growth. In his latest move, Trump is mulling over slapping tariffs of up to 25% on automobiles imported into the United States based on national security grounds. This could trigger retaliatory measures from auto exporters like Germany, Japan and South Korea and slow down global economic growth (read: U.S. Auto Tariff Risk Put These ETFs and Stocks in Focus).

Market Impact

The events led to risk-off trading with lower risk securities in vogue. As a result, investors could stash their cash in the following ETFs that offer stability or even profit as long as political turmoil keeps investors jittery.


Gold is often viewed as a store of value and acts as a hedge against market turmoil. The product tracking this bullion like GLD could be an interesting pick in the current market turbulence. 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 $35.7 billion and heavy volume of nearly 7.5 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: Top and Flop ETFs as Trump Calls Off North Korea Summit).

iShares 20+ Year Treasury Bond ETF TLT

Though the fund has been out of investors’ favor due to rising yields and has an unfavorable Zacks ETF Rank #4 (Sell) with a High risk outlook, the deepening political turmoil 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 $6.9 billion and average daily volume of 9.1 million shares. Expense ratio comes in at 0.15%. Holding 30 securities in its basket, the fund focuses on the top credit rating bonds with average maturity of 25.54 years and effective duration of 17.37 years (read: ETF Strategies to Play the 7-Year High Benchmark Yield).

PowerShares CurrencyShares Japanese Yen Trust FXY

Yen is considered a safe-haven currency in times of uncertainty. Investors could tap this via FXY, which appears a great way to play a future rise in the yen relative to the U.S. dollar. It tracks the movement of the yen relative to the U.S. dollar. The fund charges 40 bps a year in fees and sees a good volume of roughly 185,000 shares per day. The product has accumulated $166.9 million in its asset base and has a Zacks ETF Rank #3 with a Medium risk outlook.

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ISHARS-20+YTB (TLT): ETF Research Reports
CRYSHS-JAP YEN (FXY): ETF Research Reports
GOLD (LONDON P (GLD): ETF Research Reports
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