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Trump Threatens New Tariff: 5 ETF Buying Zones

Sweta Killa

The global stock market is once again threatened by renewed escalation in trade war. This is especially true as President Donald Trump tweeted that he plans to impose a new tariff of 10% on the remaining $300 billion of Chinese goods. The new duty, which is expected to hike beyond 25% later, will be effective from Sep 1 and will levied on a long list of goods including smartphones, laptop computers and children’s clothing.

With this, the United States will effectively tax all Chinese imports as another $250 billion in Chinese goods are already subject to a 25% U.S. tariff. The new tariffs came as China failed to accept the U.S. terms of buying more U.S. agricultural products (read: Americans' Confidence at About 18-Year High: Bet on These ETFs).

The rounds of fresh tariffs will hurt U.S. consumers, driving up the prices of goods, thereby curtailing spending. It will further impact worldwide economy and corporate profits, particularly at big U.S. exporters. All these will continue to weigh on the stock market and could disrupt global supply chains.

Market Impact

The Dow Jones and S&P 500 dropped nearly 1% each while Nasdaq lost 0.8% following the tariff announcement. Crude oil also recorded the biggest drop since February 2015 as new China tariff will further weaken oil demand. Meanwhile, the prospect of worsening trade dispute raised chances of the Federal Reserve’s loosening monetary policy again in September. As such, 10-year and 30-year Treasury yields dropped to the lowest level since Nov 2016 (read: Fed Cuts Rate: Sector ETFs & Stocks Set to Soar).

As the broad stock market and many other corners felt the pain, the proposed tariff triggered a flight to safety. Given this, investors should stash their cash in some safe investing zones. We have highlighted them below and their ETFs:

Gold - SPDR Gold Trust ETF GLD

Gold is viewed as a safe haven in times of economic or political turmoil. The news 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 $37.8 billion and heavy volume of nearly 8.1 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: ETFs to Grab Amid Increased Odds for Fed Rate Cut).

Long-Dated Treasury - 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 $14.7 billion and average daily volume of 8.4 million shares. Expense ratio comes in at 0.15%. The fund has a Zacks ETF Rank #3 with a High risk outlook (read: Global Easing Policies Push Treasury ETFs Higher).

Low Volatility - iShares Edge MSCI Min Vol USA ETF USMV

These 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 $30.6 billion and average daily volume of 3.7 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:  U.S. ETFs Hit $4 Trillion in AUM: 4 Reasons Behind the Boom).

Dividend - Vanguard Dividend Appreciation ETF VIG

The dividend-paying securities are the 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 $36.8 million and trades in volume of 833,000 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: Red Hot Dividend ETFs of 2019).

Small Cap - iShares Russell 2000 ETF IWM

Investors could seek shelter in a basket of small-cap stocks that have less international exposure and generate most of their revenues from the domestic market. These pint-sized stocks are less vulnerable to trade war or any other political issues and could better insulate investors against global headwinds. The ultra-popular IWM, having a Zacks ETF Rank #3 and a Medium risk outlook, could be the best pick. It has AUM of $43.4 billion and average trading volume of 19.4 million shares. It has 19 bps in expense ratio (read: Small-Cap ETFs Underperforming: Be Choosy With 5 Top Picks).

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