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How to Profit From ETFs as Saudi Attack Unnerves Investors

Sweta Killa

An attack on Saudi Arabian refining facilities unnerved investors in the weekend, leading to risk-off trade once again. This is because a drone strike at the heart of Saudi Arabia’s oil production facilities in Abqaiq and Khurais, claimed by Yemen’s Houthi rebels, disrupted about 5% of global oil supply and intensified Middle East tensions.

The explosion has not only disrupted global oil supply but also escalated geopolitical tensions between the countries. Secretary of State Michael Pompeo blamed Iran for the disruption while the allegation was rejected by Tehran. President Donald Trump said the United States is “locked and loaded depending on verification” that Iran staged the attack, raising the specter of a military response. Any retaliatory action against Iran would escalate the tensions between the two countries. The relations between the two countries turned bitter after Trump pulled out of a global nuclear pact and imposed fresh sanctions against Iran.

The latest Saudi attack has resulted in increased geopolitical risk that will continue to curb global growth, which has been already under pressure due to the U.S.-China trade tariff war as well as bouts of weak data across the globe (read: 5 Top-Performing Energy ETFs Over the Past Week).

Further, the latest bout of weak China data has sapped investors’ appetite for riskier assets. Notably, industrial output growth unexpectedly slowed to the weakest in 17 and a half years at 4.4% in August from the year-ago month. Retail sales and investment also worsened, indicating that the world’s second-largest economy is yet to stabilize.

As a result, the latest development has led to higher demand for safe-haven avenues or lower risk securities. Below we have highlighted five ETFs where investors could stash their money amid the current market turmoil.

SPDR Gold Trust ETF GLD

Gold is viewed as a safe haven in times of economic or political turmoil. Rising geopolitical tension has 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 $42.2 billion and heavy volume of nearly 9.6 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: 5 Reasons to Buy Gold ETFs as Price May Touch $2000).

iShares 20+ Year Treasury Bond ETF TLT

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 $16.9 billion and average daily volume of 9.6 million shares. Expense ratio comes in at 0.15%. The fund has a Zacks ETF Rank #3 with a High risk outlook.

iShares Edge MSCI Min Vol USA ETF USMV

Low volatility products have the potential to outpace the broader market in the event of turmoil, 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 $33.9 billion and average daily volume of 4.1 million shares is the most popular ETF. The fund charges 15 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Low-Volatility ETFs to Sail Through Trade War Uncertainty).

Vanguard Dividend Appreciation ETF VIG

Dividend-paying securities are 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 $38.4 billion and trades in volume of 856,000 shares a day on average. It charges 6 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Dividend Growth ETFs for Long Term Investors).

Invesco Defensive Equity ETF DEF      

Investors could rotate into defensive sectors like utilities, healthcare and consumer staples, which generally outperform during periods of low growth and high uncertainty. DEF seems an excellent choice as this offers exposure to companies having potentially superior risk-return profiles during periods of stock market weakness, while still offering the potential for gains during periods of market strength. The fund has accumulated $254.8 million in its asset base and sees lower volume of 17,000 shares per day on average. It charges 59 bps in fees per year and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

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