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Time to Buy Defensive ETFs?

Sanghamitra Saha
HPT vs. HCP: Which Stock Is the Better Value Option?

This week started off with uncertainty related to trade and oil.  Trade tensions between China and the United States, which have been lingering for more than three months, escalated lately.  China said it would levy tariffs on some U.S. goods, including crude and gasoline, as a retaliation to President Donald Trump’s $50 billion levy on Chinese imports.

Both will now enact a 25% tariff on each other’s $34 billion of goods from Jul 6. The remaining $16 billion worth of goods will be under public review. The first round of U.S. tariff will apply to 818 imported Chinese goods including auto, electric cars, aerospace, communications tech, new materials and robotics. In retaliation, China will penalize 545 American goods in the first round (read: Renewed Trade Spat Grips Market: 6 ETF Buying Zones).

Apart from tariff war, the oil patch has also been edgy this week with the OPEC meeting in Vienna scheduled on Jun 22. The meeting will discuss Saudi and Russia’s pledges for an output hike that is likely to be opposed by Iran, Venezuela and Iraq. The probability of an output hike and OPEC spat weighed on oil initially.

However, oil soon recovered on the hopes that the proposed output boost would be smaller-than-expected. “People probably feared 1.5 million barrels a day, and now the talk is 300,000 to 600,000 barrels a day,” says Torbjorn Kjus, chief oil analyst at DNB ASA (read: OPEC Spat & Trade Tension Drag Down Oil: ETFs to Profit).

Meanwhile, a hawkish Fed is spreading fear among investors. The ECB announced the gradual wrap-up of QE this year, though rates will be kept at the rock-bottom levels. Emerging markets are on a downtrend. Overseas funds are pulling out from six major Asian emerging equity markets at a clip not seen since the global financial crisis of 2008.

The Stoxx Europe 600 logged its biggest two-day decline since March and Japan’s Topix plunged the most in about three weeks. In such a scenario, if investors fear any kind of doldrums in the market, defensive ETFs could be useful.

Below we highlight a few:

IQ Hedge Multi-Strategy Tracker ETF (QAI)

The underlying index looks to replicate the risk-adjusted return characteristics of the collective hedge funds using various hedge fund investment styles. The expense ratio of the fund is 0.76%.

AGFiQ US Market Neutral Anti-Beta (BTAL)

Investors who want to shift their focus to investing in low-beta stocks during this uncertain market environment can consider adding BTAL ETF to their portfolio. This fund follows the Dow Jones U.S. Thematic Market Neutral Anti-Beta Index. It offers exposure to the spread return between low and high-beta stocks. The net expense ratio of the fund is 1.93%.

First Trust Long/Short Equity ETF (FTLS)

The actively managed fund looks to provide investors with long-term total returns. The Advisor will look to manage risk and control exposures between the long and short portfolio. The 263-stock fund’s expense ratio is 1.48%.

Invesco S&P 500 BuyWrite ETF (PBP)

The underlying index measures total returns of a theoretical portfolio including the S&P 500 Index stocks on which S&P 500 Index call options are systematically written against the portfolio through a buy-write strategy. The fund charges 75 bps in fees and yields about 4.95% annually.

YieldShares High Income ETF (YYY)

The underlying ISE High Income Index comprises 30 closed-end funds (CEFs) ranked highest overall by the ISE in three criteria namely fund yield, discount to net asset value and liquidity. The fund yields about 8.46% annually (read: Earn 5% Plus Yield With These ETFs).

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YLD SHS-HI INC (YYY): ETF Research Reports
 
FT-LONG/SHRT EQ (FTLS): ETF Research Reports
 
IQ-HEDGE MUL-ST (QAI): ETF Research Reports
 
PWRSH-SP5 BUYWR (PBP): ETF Research Reports
 
QS-US MN AN-BET (BTAL): ETF Research Reports
 
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