Back to top

Image: Bigstock

September's Weak History Turning True: 5 ETF Buying Zones

Read MoreHide Full Article

September is once again proving to be a tough month for Wall Street with the major three indices in red within three weeks into the month. This suggests that historical trends may prove true this year. Concerns over accelerating coronavirus infections, Fed’s tapering talks, renewed inflation fears, signs of a slowdown in China and a potential high corporate tax rates have taken a toll on stock markets.

Ongoing debates over the debt limit in Washington as well as the potential collapse of property developer China Evergrande have also led to risk-off trading. The White House warned that a failure by the U.S. Congress to extend the debt limit could push the economy into a recession and lead the country to default on its payment obligations. The U.S. House is set to vote this week on the debt ceiling. Meanwhile, China’s real estate juggernaut, which is under a major debt burden, facing a $150 million in bond payments later this week, could default on its payment. This would trigger turmoil across global markets.

Additionally, the Q3 earnings trend has also lost momentum with the magnitude of positive revisions to the estimates notably below the comparable periods of the last three earnings seasons (read: September Turns Sour: Top ETF Areas of Last Week).

Given the myriad of woes, investors should stash their cash in some safe investing zones. We have highlighted them below and their ETFs:

Gold - SPDR Gold Trust ETF (GLD - Free Report)

Gold is viewed as a safe haven in times of economic or political turmoil. Concerns over global economic slowdown have 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 $56.3 billion and heavy volume of nearly 7 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.

Long-Dated Treasury - iShares 20+ Year Treasury Bond ETF (TLT - Free Report)

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 holds 31 securities in its basket and charges 15 bps in annual fees. TLT is one of the most popular and liquid ETFs in the bond space with AUM of $17.7 billion and an average daily volume of 15 million shares.

Low Volatility - iShares Edge MSCI Min Vol USA ETF (USMV - Free Report)

These products have the potential to outpace the broader market providing significant protection to the portfolio. These funds include more stable stocks that have experienced the least price movement. 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 $28.2 billion and an average daily volume of 2.2 million shares is the most popular ETF. The fund offers exposure to stocks that have lower volatility characteristics relative to the broader U.S. equity market. It tracks the MSCI USA Minimum Volatility Index, holding 183 stocks in its basket. The product charges 15 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Growth Concerns to Drive Demand for Low-Volatility ETFs).

Dividend - Vanguard Dividend Appreciation ETF (VIG - Free Report)

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. It holds 247 stocks in its basket with AUM of $65.8 million. The fund trades in volume of 2 million shares a day on average and charges 6 bps in annual fees. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Dividend Aristocrat ETFs Investing Guide).

Long/Short - AGFiQ US Market Neutral Anti-Beta Fund (BTAL - Free Report)

The fund has the potential to generate positive returns regardless of the direction of the stock market as long as low-beta stocks outperform high beta stocks. It invests in low-beta securities and at the same time shorts high-beta stocks of approximately equal dollar amounts within each sector. It seeks to deliver the spread return between low and high-beta stocks. This can easily be done by tracking Dow Jones U.S. Thematic Market Neutral Anti-Beta Index. The ETF has AUM of $99.2 million and an expense ratio of 2.19%. It trades in an average daily volume of 37,000 shares.

Published in