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The week ending Feb 29 saw the U.S. market entering into the correction territory. The spike in the number of infected cases outside mainland China has made coronavirus a serious threat to global economic growth. The virus has now spread to around 70 countries and territories around the world, claiming 3,069 lives, along with 89,798 confirmed cases. South Korea is grappling with rising cases, which have now reached 4,335. Meanwhile, Italy, which has already been struggling with a weak economy, has witnessed a spike in the infected cases to 1,704. Further, cases in Iran have surged to 1,501. New cases in New Zealand, Belarus, Lithuania and Nigeria were also registered in the last week.
Given the situation, let’s look at some ETF types that investors can follow for a smooth sail during these turbulent times.
Inverse ETFs
The rapidly-spreading coronavirus sent jitters among investors last week, sending the global market into a tailspin and resulting in strong demand for inverse or inverse leveraged ETFs. These products either create a short position or a leveraged short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can earn higher returns in a shorter period of time, provided the trend remains in favor. However, these funds run the risk of huge losses compared with traditional funds in fluctuating markets. So, investors intending to play against the tumbling Dow Jones, may tap ProShares Short Dow 30 (DOG - Free Report) , ProShares UltraShort Dow30 DXD and ProShares UltraPro Short Dow30 SDOW (read: Coronavirus Triggers Market Bloodbath: 7 Hot Inverse ETF Areas).
Dividend ETFs
In a low-interest rate environment, dividend investing becomes the hot spot. Against this backdrop, dividend ETFs like WisdomTree U.S. Quality Dividend Growth Fund (DGRW - Free Report) , FlexShares Quality Dividend Defensive Index FundQDEF, WBI Power Factor High Dividend ETFWBIY and Schwab US Dividend Equity ETFSCHD might be compelling picks (read: 7 Dividend ETFs That Offer Growth in 2020).
Low-Volatility ETFs
Demand for funds with “low volatility” or “minimum volatility” generally shoots up during tumultuous times. These seemingly-safe products usually do not surge in bull market conditions but offer protection against unpredictable situations. Providing more stable cash flow than the overall market, these funds are less cyclical in nature. Here are some options, iShares Edge MSCI Min Vol USA ETF (USMV - Free Report) , Invesco S&P 500 Low Volatility ETF SPLV, iShares Edge MSCI EAFE Minimum Volatility ETF (EFAV - Free Report) , iShares Edge MSCI Min Vol Global ETF ACWV, Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) (read: Is it the Right Time to Buy Global Low-Volatility ETFs?).
Utility ETFs
The rising tensions are causing investors to seek refuge in safer investment options, with the utility sector hogging major attention. The sector is among the most stable for the long term, as its players are likely to offer decent returns, irrespective of market conditions. It is known for its non-cyclical nature and acts as a safe haven for investors during choppy stock-market conditions. Furthermore, utilities act as a defensive option to stay invested in more rewarding equity markets. In view of this, investors can consider The Utilities Select Sector SPDR Fund (XLU - Free Report) , Vanguard Utilities ETF (VPU - Free Report) , iShares U.S. Utilities ETF (IDU - Free Report) and Fidelity MSCI Utilities Index ETF (FUTY - Free Report) (read: ETFs to Buy as Utilities Are Favored Amid Virus Scare).
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ETFs to Play as Dow Slid 12% Last Week
The week ending Feb 29 saw the U.S. market entering into the correction territory. The spike in the number of infected cases outside mainland China has made coronavirus a serious threat to global economic growth. The virus has now spread to around 70 countries and territories around the world, claiming 3,069 lives, along with 89,798 confirmed cases. South Korea is grappling with rising cases, which have now reached 4,335. Meanwhile, Italy, which has already been struggling with a weak economy, has witnessed a spike in the infected cases to 1,704. Further, cases in Iran have surged to 1,501. New cases in New Zealand, Belarus, Lithuania and Nigeria were also registered in the last week.
Consequently, the Dow Jones Industrial Average tumbled by around 12%, witnessing its worst weekly performance since the financial crisis. Moreover, the Dow Jones fell 1,190.95 points on Feb 27 — its worst single-day slump in history. In fact, all the 30 Dow holdings suffered from the bloodbath and ended the last week by losing more than 10% from their respective 52-week highs. Moreover, the S&P 500 index depreciated around 11% during the same time period (read: Go Defensive With These ETFs as Stock Rout May Worsen).
Fears that the coronavirus outbreak will dent corporate earnings also flared up last week. Big players like Microsoft Corporation (MSFT - Free Report) , PayPal Holdings, Inc. (PYPL - Free Report) and Mastercard Incorporated (MA - Free Report) informed that the coronavirus epidemic might adversely impact their revenues this year (read: Microsoft Revises Sales Guidance on Coronavirus: ETFs in Focus).
Given the situation, let’s look at some ETF types that investors can follow for a smooth sail during these turbulent times.
Inverse ETFs
The rapidly-spreading coronavirus sent jitters among investors last week, sending the global market into a tailspin and resulting in strong demand for inverse or inverse leveraged ETFs. These products either create a short position or a leveraged short position in the underlying index through the use of swaps, options, future contracts and other financial instruments. Due to their compounding effect, investors can earn higher returns in a shorter period of time, provided the trend remains in favor. However, these funds run the risk of huge losses compared with traditional funds in fluctuating markets. So, investors intending to play against the tumbling Dow Jones, may tap ProShares Short Dow 30 (DOG - Free Report) , ProShares UltraShort Dow30 DXD and ProShares UltraPro Short Dow30 SDOW (read: Coronavirus Triggers Market Bloodbath: 7 Hot Inverse ETF Areas).
Dividend ETFs
In a low-interest rate environment, dividend investing becomes the hot spot. Against this backdrop, dividend ETFs like WisdomTree U.S. Quality Dividend Growth Fund (DGRW - Free Report) , FlexShares Quality Dividend Defensive Index Fund QDEF, WBI Power Factor High Dividend ETF WBIY and Schwab US Dividend Equity ETF SCHD might be compelling picks (read: 7 Dividend ETFs That Offer Growth in 2020).
Low-Volatility ETFs
Demand for funds with “low volatility” or “minimum volatility” generally shoots up during tumultuous times. These seemingly-safe products usually do not surge in bull market conditions but offer protection against unpredictable situations. Providing more stable cash flow than the overall market, these funds are less cyclical in nature. Here are some options, iShares Edge MSCI Min Vol USA ETF (USMV - Free Report) , Invesco S&P 500 Low Volatility ETF SPLV, iShares Edge MSCI EAFE Minimum Volatility ETF (EFAV - Free Report) , iShares Edge MSCI Min Vol Global ETF ACWV, Invesco S&P 500 High Dividend Low Volatility ETF (SPHD - Free Report) (read: Is it the Right Time to Buy Global Low-Volatility ETFs?).
Utility ETFs
The rising tensions are causing investors to seek refuge in safer investment options, with the utility sector hogging major attention. The sector is among the most stable for the long term, as its players are likely to offer decent returns, irrespective of market conditions. It is known for its non-cyclical nature and acts as a safe haven for investors during choppy stock-market conditions. Furthermore, utilities act as a defensive option to stay invested in more rewarding equity markets. In view of this, investors can consider The Utilities Select Sector SPDR Fund (XLU - Free Report) , Vanguard Utilities ETF (VPU - Free Report) , iShares U.S. Utilities ETF (IDU - Free Report) and Fidelity MSCI Utilities Index ETF (FUTY - Free Report) (read: ETFs to Buy as Utilities Are Favored Amid Virus Scare).
Want key ETF info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>