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Why Should You Bet On Cash-Like ETFs Ahead of Elections

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With elections just a few weeks away, Wall Street has been witnessing huge volatility and uncertainty after an astounding rally over the past five months.

Though Democratic presidential nominee Joe Biden is clearly leading the 2020 presidential race, a team of “super-forecasters” (stock market analysts with good track records) predicts that it could be weeks or months before either Donald Trump or Joe Biden concedes the election. The research says that there is only a 16% probability that one candidate or the other will concede until Thanksgiving and there’s a 37% chance that it won’t come until between then and Inauguration Day onJan 20, 2021.

Of the 20 strategists surveyed by CNBC, 14 picked a Biden victory over Donald Trump. Half of them expect the S&P 500 to decline in the first month following the election day. Five of the 20 expect a rally, four predicted a range-bound market, and one declined to answer (read: Bears Creep In: ETF Strategies to Win).

Election uncertainty coupled with the sharp decline in technology stocks led to a bloodbath in the stock market early this month, which was followed by a new wave of COVID-19 globally that unnerved investors. A report that showed global banks moved allegedly illicit funds over the past two decades also contributed to the market decline. Additionally, a deadlock in the additional fiscal stimulus package, concerns over fresh lockdowns measures, and rising U.S.-China tensions added to the chaos.

Amid market uncertainty, investors once again prefer to hoard cash. In fact, cash holdings have been on the rise this year as COVID-19 infections continued to dampen the economic recovery. According to a new research by Morgan Stanley, American households hoarded $12.5 trillion in cash from April through July.

Another report also revealed that a group of multimillionaire investors in the United States is hoarding cash at unprecedented levels. Tiger 21, a club of more than 800 investors, reported that its members have raised their cash holdings to 19% of their total assets on concerns over the economic consequences of the pandemic in the United States. This is up from about 12% since the start of the outbreak. Per Michael Sonnenfeldt, chairman of the club, “the rise in cash is an extraordinary change statistically and is the largest, fastest change in asset allocation Tiger 21 has seen.”

Billionaire media mogul Barry Diller urged investors on CNBC to maintain sizable cash positions following the stock market’s robust rally from coronavirus-induced lows in late March, citing election uncertainty.

That said, investors could bet on cash-like ETFs in order to mitigate the risk of decline in the weeks ahead. These funds invest in short-term bonds and look compelling picks ahead of elections. In fact, these will help investors in keeping aside money for a couple of weeks to a few months with almost no risk. Below, we have highlighted them:

iShares Short Treasury Bond ETF (SHV - Free Report)

The fund provides exposure to U.S. Treasury bonds that mature in less than 1 year. It holds 41 securities in its basket, with both average maturity of 0.40 years and effective duration of 0.39 years. The product has amassed $20.8 billion in its asset base while trading in solid volume of 2.2 million shares a day. It charges 15 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Is Cash the Safest Asset Right Now? ETFs in Focus).

JPMorgan Ultra-Short Income ETF (JPST - Free Report)

This fund invests mainly in investment-grade, US dollar-denominated fixed, variable and floating-rate debt. It holds 987 bonds in its basket with average duration of 0.94 years. It has accumulated $14.4 billion in its asset base while trading in a good volume of around 2.9 million shares a day. It charges 18 bps in annual fees.

SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL - Free Report)

The product seeks to provide exposure to zero coupon U.S. Treasury securities that have a remaining maturity of 1-3 months. It follows the Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index, holding 14 securities in its basket. Both average maturity and adjusted duration comes in at 0.10 years. BIL has AUM of $14.2 billion and average daily volume of 1.7 million shares. It charges 13 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

Goldman Sachs Access Treasury 0-1 Year ETF (GBIL - Free Report)

This product tracks the FTSE US Treasury 0-1 Year Composite Select Index, which is designed to measure the performance of U.S. Treasury Obligations with a maximum remaining maturity of one year. It holds 13 securities in its basket and charges 12 bps in annual fees. Average maturity and effective duration comes at 0.28 years each. GBIL has amassed $3 billion in its asset base while trading in volume of 318,000 per share on average. It has a Zacks ETF Rank #3 (see: all the Government Bond ETFs here).

iShares 0-3 Month Treasury Bond ETF (SGOV - Free Report)

This ETF offers exposure to U.S. Treasury bonds with remaining maturities less than or equal to three months by tracking the ICE 0-3 Month US Treasury Securities Index. It has average maturity of 0.07 years and effective duration of 0.06 years. The fund has AUM of $835.1 million and trades in average daily volume of 14,000 shares. It charges 7 bps in annual fees.

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