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US-China Close to a Trade Deal? High-Beta & Risky ETFs to Tap

Sanghamitra Saha
Sector ETF report for FSTA

It appears the world’s key economies are likely to put an end to their year-long trade tensions and at a summit around Mar 27, per a report from the Wall Street Journal on Mar 1. Such hopes boosted the broader market, reflecting investors’ increased risk appetite. Aussie and yuan gained on the news.

So far, the United States has imposed tariffs on $250 billion worth of imports from China, while Beijing has retaliated with tariffs on $110 billion worth of U.S. goods, per the source. However, things started improving from 2019 with both countries negotiating hard. Late last month, Trump even postponed the increase in tariffs on $200 billion of Chinese goods to 25% from 10% from this month, citing "substantial progress" in trade talks (read: 10 ETF Areas to Gain as Trump Delays Additional Tariffs).

Since investors cheered the likely trade truce, markets should rally on a concrete deal. And these high beta and risky ETFs are then likely to be in great shape.

High-Beta ETFs

Beta is directly related to market movement. Notably, high beta funds tend to rise or fall more than the stock market and are thus more volatile. When markets soar, high beta funds experience larger gains than the broader market counterparts and thus, outpace their rivals.

Invesco S&P 500 High Beta Portfolio SPHB

The underlying S&P 500 High Beta Index consists of 100 stocks from the S&P 500 index with the highest sensitivity to market movements, or beta, over the past 12 months. The fund charges 25 bps in fees.

High Risk ETFs

As the risk-appetite of investors will increase if the trade deal is clinched leading to a global market rally, investors can play the following ETFs.

VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL)

High-yield bonds are associated with higher default risks. The fund comprises below investment grade corporate bonds denominated in U.S. dollars, issued in the U.S. domestic market. It yields around 5.57% annually.

Invesco Strategic Emerging Markets ETF (ISEM)

The emerging market investing is known as high-risk in nature. The risks associated with emerging markets are political, currency and liquidity-related. But with the Fed being dovish, the greenback at moderate levels and trade-tensions ending, emerging market ETFs should rally (read: Emerging Markets Most Crowded Trade Ever: 5 Hottest ETFs).

ProShares Ultra S&P 500 (SSO)

Investing in the equity market demands greater apetite for risks than the bond market. The S&P 500, which is in great shape so far this year, is likely to enjoy a strong spell if a trade truce is reached. And upbeat U.S. GDP growth report for Q4, a decent earnings season and a dovish Fed should fan the winning momentum. The euphoria could be tapped via leveraged ETFs like SSO, which is actually risky in nature. The fund looks to offer twice (200%) the daily performance of the S&P 500. Investors should note that the fund is up about 25% this year (read: How to Go Long On the S&P 500 With ETFs).

iShares Russell 1000 Growth ETF (IWF)

And who can forget growth ETFs? Since many growth stocks trade at a rich valuation and are thus vulnerable to wild price moves, these are normally considered a bit risky. However, the prevailing investing backdrop is one where growth stocks should sizzle. Investors can thus bet on this growth ETF.

Ark Innovation ETF (ARKK)

This fund comes from the high-growth technology sector. 3D Printing, big data and machine learning, e-commerce and gene therapy are the top holdings of the fund. Since high-growth sectors call for higher risks, the fund may rally in case of a US-China trade truce.

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VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL): ETF Research Reports
 
ARK Innovation ETF (ARKK): ETF Research Reports
 
iShares Russell 1000 Growth ETF (IWF): ETF Research Reports
 
Invesco S&P 500 High Beta ETF (SPHB): ETF Research Reports
 
ProShares Ultra S&P500 (SSO): ETF Research Reports
 
Invesco Strategic Emerging Markets ETF (ISEM): ETF Research Reports
 
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