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ETF Strategies to Brave the Second Wave of Coronavirus Infections
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Wall Street is now clouded by rising worries over the resurgence of the coronavirus infections in the United States. In fact, the S&P 500 lost 5.9% on Jun 11, marking its worst one-day fall since Mar 16. It was also the index’s fifth fall of at least 5% in the past three-month period. Going by the Johns Hopkins University data, the number of U.S. coronavirus infections passed the grim mark of two million and more than 113,700 Americans have lost their lives. The seven-day average of new cases continued to spike in more than 20 states over the last two weeks, despite lesser number of cases being recorded in some cities and states. The surging cases might lead to Houston-area officials re-imposing stay-at-home orders (per Bloomberg News) .
The Center for Disease Control and Prevention forecasts between 118,000 and 143,000 coronavirus deaths in the United States by Jun 27 (per a CNN report). Moreover, a White House model has predicted that the death toll in the United States could reach 169,890 by Oct 1, with a probable range of about 133,000-290,000 deaths (per a CNN report).
Meanwhile, the Federal Reserve Chair Jerome Powell maintained a dovish stance in the FOMC meeting concluded on Jun 10. He informed that there is no expectation of a rate hike through 2022. The Fed has pledged to continue pumping in stimulus to support the economy and strengthen it. The central bank has also reiterated that the Fed funds rate would likely stay in the 0-0.25% range and confirmed continued bond-buying. The central bank forecasts the unemployment rate to fall to 9.3% by the end of this year. Though the figure is down from May’s 13.3%, it will be noticeably above the 3.5% recorded in February — a near 50-year low.
The unemployment rate will later likely improve to 6.5% in 2021. The U.S. GDP was projected to shrink 6.5% this year before rebounding 5% next year and 3.5% in 2022. Inflation was forecast to remain below the Fed’s 2% target through 2022.
In such a scenario, investors can take a look at the following ETF strategies to combat the ongoing coronavirus crisis:
Try the Inverse ETFs
The pandemic-induced volatility can boost 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 impact, investors can earn higher returns in a shorter period of time, provided the trend remains favorable. However, these funds run the risk of huge losses compared with the traditional funds in fluctuating markets. So, investors intending to play against the tumbling Dow Jones, might tap ProShares ShortDow 30 (DOG - Free Report) , ProSharesUltraShort Dow30 (DXD - Free Report) and ProSharesUltraPro Short Dow30SDOW (read: Inverse ETFs Gain on Powell's Economic Warning).
Dividend ETFs to the Rescue
In a low-interest rate environment, dividend investing becomes a hot spot. Against this backdrop, dividend ETFs like WisdomTree U.S. Quality Dividend Growth FundDGRW, FlexShares Quality Dividend Defensive Index Fund (QDEF - Free Report) , WBI Power Factor High Dividend ETFWBIY and Schwab US Dividend Equity ETFSCHD might be compelling picks (read: A Quick Guide to Dividend Aristocrat ETFs).
The Most Popular Safe Haven: Gold ETFs
Price of precious metals like gold rises during turbulent market conditions as these are considered safe-haven assets. In the present low-rate environment, gold should do well. Gold ETFs mostly move in tandem with gold prices. The SPDR Gold Shares (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) , SPDR Gold MiniShares Trust GLDM and GraniteShares Gold Trust BAR are some of the popular ETFs (read: Winning ETF Strategies to Fight a Weak Dollar).
Bet on Low-Volatility ETFs
Demand for funds with “low volatility” or “minimum volatility” generally increases during tumultuous times. These seemingly-safe products generally do not surge in bull market conditions but offer protection against the unpredictable ones. 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 - Free Report) , iShares Edge MSCI EAFE Minimum Volatility ETF EFAV, iShares Edge MSCI Min Vol Global ETF ACWV, Invesco S&P 500 High Dividend Low Volatility ETFSPHD (read: Is it the Right Time to Invest in Minimum Volatility ETFs?).
Play the Non-Cyclical Consumer Staple Sector
This non-cyclical sector is likely to be less hammered by any market crash. The sector can emerge as a true safe haven amid the latest crisis, as even people on self-quarantine need daily essentials. Investors can consider The Consumer Staples Select Sector SPDR Fund (XLP - Free Report) , Vanguard Consumer Staples ETF (VDC - Free Report) , iShares U.S. Consumer Goods ETFIYK and Invesco S&P 500 Equal Weight Consumer Staples ETFRHS (read: Walmart Delights Investors: ETFs in Focus).
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ETF Strategies to Brave the Second Wave of Coronavirus Infections
Wall Street is now clouded by rising worries over the resurgence of the coronavirus infections in the United States. In fact, the S&P 500 lost 5.9% on Jun 11, marking its worst one-day fall since Mar 16. It was also the index’s fifth fall of at least 5% in the past three-month period. Going by the Johns Hopkins University data, the number of U.S. coronavirus infections passed the grim mark of two million and more than 113,700 Americans have lost their lives. The seven-day average of new cases continued to spike in more than 20 states over the last two weeks, despite lesser number of cases being recorded in some cities and states. The surging cases might lead to Houston-area officials re-imposing stay-at-home orders (per Bloomberg News) .
The Center for Disease Control and Prevention forecasts between 118,000 and 143,000 coronavirus deaths in the United States by Jun 27 (per a CNN report). Moreover, a White House model has predicted that the death toll in the United States could reach 169,890 by Oct 1, with a probable range of about 133,000-290,000 deaths (per a CNN report).
Meanwhile, the Federal Reserve Chair Jerome Powell maintained a dovish stance in the FOMC meeting concluded on Jun 10. He informed that there is no expectation of a rate hike through 2022. The Fed has pledged to continue pumping in stimulus to support the economy and strengthen it. The central bank has also reiterated that the Fed funds rate would likely stay in the 0-0.25% range and confirmed continued bond-buying. The central bank forecasts the unemployment rate to fall to 9.3% by the end of this year. Though the figure is down from May’s 13.3%, it will be noticeably above the 3.5% recorded in February — a near 50-year low.
The unemployment rate will later likely improve to 6.5% in 2021. The U.S. GDP was projected to shrink 6.5% this year before rebounding 5% next year and 3.5% in 2022. Inflation was forecast to remain below the Fed’s 2% target through 2022.
In such a scenario, investors can take a look at the following ETF strategies to combat the ongoing coronavirus crisis:
Try the Inverse ETFs
The pandemic-induced volatility can boost 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 impact, investors can earn higher returns in a shorter period of time, provided the trend remains favorable. However, these funds run the risk of huge losses compared with the traditional funds in fluctuating markets. So, investors intending to play against the tumbling Dow Jones, might tap ProShares Short Dow 30 (DOG - Free Report) , ProSharesUltraShort Dow30 (DXD - Free Report) and ProSharesUltraPro Short Dow30 SDOW (read: Inverse ETFs Gain on Powell's Economic Warning).
Dividend ETFs to the Rescue
In a low-interest rate environment, dividend investing becomes a hot spot. Against this backdrop, dividend ETFs like WisdomTree U.S. Quality Dividend Growth Fund DGRW, FlexShares Quality Dividend Defensive Index Fund (QDEF - Free Report) , WBI Power Factor High Dividend ETF WBIY and Schwab US Dividend Equity ETF SCHD might be compelling picks (read: A Quick Guide to Dividend Aristocrat ETFs).
The Most Popular Safe Haven: Gold ETFs
Price of precious metals like gold rises during turbulent market conditions as these are considered safe-haven assets. In the present low-rate environment, gold should do well. Gold ETFs mostly move in tandem with gold prices. The SPDR Gold Shares (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) , SPDR Gold MiniShares Trust GLDM and GraniteShares Gold Trust BAR are some of the popular ETFs (read: Winning ETF Strategies to Fight a Weak Dollar).
Bet on Low-Volatility ETFs
Demand for funds with “low volatility” or “minimum volatility” generally increases during tumultuous times. These seemingly-safe products generally do not surge in bull market conditions but offer protection against the unpredictable ones. 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 - Free Report) , iShares Edge MSCI EAFE Minimum Volatility ETF EFAV, iShares Edge MSCI Min Vol Global ETF ACWV, Invesco S&P 500 High Dividend Low Volatility ETF SPHD (read: Is it the Right Time to Invest in Minimum Volatility ETFs?).
Play the Non-Cyclical Consumer Staple Sector
This non-cyclical sector is likely to be less hammered by any market crash. The sector can emerge as a true safe haven amid the latest crisis, as even people on self-quarantine need daily essentials. Investors can consider The Consumer Staples Select Sector SPDR Fund (XLP - Free Report) , Vanguard Consumer Staples ETF (VDC - Free Report) , iShares U.S. Consumer Goods ETF IYK and Invesco S&P 500 Equal Weight Consumer Staples ETF RHS (read: Walmart Delights Investors: ETFs in Focus).
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 >>