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5 ETFs to Tackle Ukraine-Russia War, Inflation & Fed Rate Hike Woes
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Investors will agree that the three burning issues currently clouding the U.S. economy are the ongoing geopolitical war between Russia and Ukraine, rising inflation levels and the Fed rate hike concerns as we enter March.
The West has been continuing to isolate Moscow by imposing several sanctions on Russian banks, its sovereign debt along with Russian President Vladimir Putin and Foreign Minister Sergey Lavrov. In fact, the United States, European allies and Canada have given consent to remove major Russian banks from the interbank messaging system, SWIFT. These sanctions are expected to hit Russia’s economy very hard.
In this regard, Dennis DeBusschere of 22V Research has commented that “Some Russian banks being removed from SWIFT (energy transactions exempt) and the freezing of the Russian central bank’s access to its foreign currency reserves held in the West clearly increases economic tail risk,” as stated in a CNBC article.
Going on, investors will also be closely following Federal Reserve Chairman Jerome Powell this week to find any indication regarding a rate hike in March to control the hot inflation levels. The Fed’s primary inflation measure, the core personal consumption expenditures price index, also increased 5.2% year over year (per the Commerce Department data). The metric surpassed the Dow Jones estimate of a 5.1% rise.
Against this backdrop, let’s take a look at some ETF options for investors to consider:
The shift toward a tighter monetary policy will push yields higher, thereby helping the banking sector. This is because rising rates will help in boosting profits for banks, insurance companies, discount brokerage firms and asset managers. The steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a chunk of banks’ revenues, is likely to receive support from the steepening of the yield curve and a modest rise in loan demand. Moreover, as the U.S. economy starts operating in full swing and recovering, banks will be able to generate more business.
SPDR S&P Regional Banking ETF seeks to provide investment results that before fees and expenses generally correspond to the total return performance of the S&P Regional Banks Select Industry Index. It has AUM of $5.40 billion and charges 0.35% in expense ratio (read: ETF Strategies to Conquer Geopolitical & Fed Rate Hike Worries).
Oil prices have been rallying amid the Russia-Ukraine geopolitical crisis. Russia’s move is leading to a rise in oil prices as it is among the world’s largest suppliers of oil and natural gas. There are other factors as well supporting the oil prices. The coronavirus vaccine rollout is gradually helping control the outbreak's spread across the globe. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for cyclical sectors.
The United States Oil Fund’s investment objective is for the daily changes, in percentage terms, of its shares’ net asset value (NAV) to reflect the daily changes, in percentage terms, of the spot price of light sweet crude oil delivered to Cushing, OK, as measured by the daily changes in the Benchmark Oil Futures Contract. It has AUM of $2.70 billion and charges 0.83% in expense ratio.
Dividend aristocrats are blue-chip dividend-paying companies with a long track record of increasing dividend payments year over year. Moreover, dividend aristocrat funds give investors dividend growth opportunities compared to other products in the space but might not necessarily have the highest yields.
‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed the smartest way to deal with market turmoil. These products also form a strong portfolio with a higher scope of capital appreciation against simple dividend-paying stocks or those with high yields. As a result, these products deliver an excellent combination of annual dividend growth and capital-appreciation opportunity and are most beneficial to risk-averse long-term investors.
ProShares S&P 500 Dividend Aristocrats ETF seeks investment results before fees and expenses that track the performance of the S&P 500 Dividend Aristocrats Index. NOBL is the only ETF focusing exclusively on the S&P 500 Dividend Aristocrats, which are high-quality companies that not just paid out dividends but also raised the same for at least 25 consecutive years, with most doing so for 40 years or more. NOBL has amassed $9.47 billion in its asset base. ProShares S&P 500 Dividend Aristocrats ETF has an expense ratio of 0.35% (read: Guide to Dividend Aristocrat ETFs).
Rising geopolitical tensions are supporting the yellow metal. Investors are scurrying for safe-haven assets amid the rising tensions between Russia and Ukraine. Notably, investors generally opt for cash or cash-like investments instead of risky assets like equities while evaluating such situations' economic and financial impact. The inflationary backdrop in the United States is favorable for gold as the metal is viewed as a hedge against inflation.
This is the largest and most popular ETF in the gold space, with AUM of $63.02 billion. The fund reflects the performance of the price of gold bullion, less the Trust's expenses. At launch, each share of this ETF represented about 1/10th of an ounce of gold. The expense ratio is 0.40% (read: Russia Attacks Ukraine: ETF Areas Grabbing Investor Attention).
TIPS ETFs offer robust real returns during inflationary periods, unlike their unprotected peers in the fixed-income world. It provides shelter from increasing prices and protects income for the long term.
iShares TIPS Bond ETF seeks to track the investment results of an index composed of inflation-protected U.S. Treasury bonds. It has amassed $34.37 billion in its asset base and has an expense ratio of 0.19% (read: ETF Strategies to Combat Red-Hot Inflation Readings).
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5 ETFs to Tackle Ukraine-Russia War, Inflation & Fed Rate Hike Woes
Investors will agree that the three burning issues currently clouding the U.S. economy are the ongoing geopolitical war between Russia and Ukraine, rising inflation levels and the Fed rate hike concerns as we enter March.
The West has been continuing to isolate Moscow by imposing several sanctions on Russian banks, its sovereign debt along with Russian President Vladimir Putin and Foreign Minister Sergey Lavrov. In fact, the United States, European allies and Canada have given consent to remove major Russian banks from the interbank messaging system, SWIFT. These sanctions are expected to hit Russia’s economy very hard.
In this regard, Dennis DeBusschere of 22V Research has commented that “Some Russian banks being removed from SWIFT (energy transactions exempt) and the freezing of the Russian central bank’s access to its foreign currency reserves held in the West clearly increases economic tail risk,” as stated in a CNBC article.
Going on, investors will also be closely following Federal Reserve Chairman Jerome Powell this week to find any indication regarding a rate hike in March to control the hot inflation levels. The Fed’s primary inflation measure, the core personal consumption expenditures price index, also increased 5.2% year over year (per the Commerce Department data). The metric surpassed the Dow Jones estimate of a 5.1% rise.
Against this backdrop, let’s take a look at some ETF options for investors to consider:
SPDR S&P Regional Banking ETF (KRE - Free Report)
The shift toward a tighter monetary policy will push yields higher, thereby helping the banking sector. This is because rising rates will help in boosting profits for banks, insurance companies, discount brokerage firms and asset managers. The steepening of the yield curve (the difference between short and long-term interest rates) is likely to support banks’ net interest margins. As a result, net interest income, which constitutes a chunk of banks’ revenues, is likely to receive support from the steepening of the yield curve and a modest rise in loan demand. Moreover, as the U.S. economy starts operating in full swing and recovering, banks will be able to generate more business.
SPDR S&P Regional Banking ETF seeks to provide investment results that before fees and expenses generally correspond to the total return performance of the S&P Regional Banks Select Industry Index. It has AUM of $5.40 billion and charges 0.35% in expense ratio (read: ETF Strategies to Conquer Geopolitical & Fed Rate Hike Worries).
United States Oil Fund (USO - Free Report)
Oil prices have been rallying amid the Russia-Ukraine geopolitical crisis. Russia’s move is leading to a rise in oil prices as it is among the world’s largest suppliers of oil and natural gas. There are other factors as well supporting the oil prices. The coronavirus vaccine rollout is gradually helping control the outbreak's spread across the globe. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for cyclical sectors.
The United States Oil Fund’s investment objective is for the daily changes, in percentage terms, of its shares’ net asset value (NAV) to reflect the daily changes, in percentage terms, of the spot price of light sweet crude oil delivered to Cushing, OK, as measured by the daily changes in the Benchmark Oil Futures Contract. It has AUM of $2.70 billion and charges 0.83% in expense ratio.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL - Free Report)
Dividend aristocrats are blue-chip dividend-paying companies with a long track record of increasing dividend payments year over year. Moreover, dividend aristocrat funds give investors dividend growth opportunities compared to other products in the space but might not necessarily have the highest yields.
‘Dividend aristocrats’ or ‘dividend growers’ are mostly deemed the smartest way to deal with market turmoil. These products also form a strong portfolio with a higher scope of capital appreciation against simple dividend-paying stocks or those with high yields. As a result, these products deliver an excellent combination of annual dividend growth and capital-appreciation opportunity and are most beneficial to risk-averse long-term investors.
ProShares S&P 500 Dividend Aristocrats ETF seeks investment results before fees and expenses that track the performance of the S&P 500 Dividend Aristocrats Index. NOBL is the only ETF focusing exclusively on the S&P 500 Dividend Aristocrats, which are high-quality companies that not just paid out dividends but also raised the same for at least 25 consecutive years, with most doing so for 40 years or more. NOBL has amassed $9.47 billion in its asset base. ProShares S&P 500 Dividend Aristocrats ETF has an expense ratio of 0.35% (read: Guide to Dividend Aristocrat ETFs).
SPDR Gold Shares (GLD - Free Report)
Rising geopolitical tensions are supporting the yellow metal. Investors are scurrying for safe-haven assets amid the rising tensions between Russia and Ukraine. Notably, investors generally opt for cash or cash-like investments instead of risky assets like equities while evaluating such situations' economic and financial impact. The inflationary backdrop in the United States is favorable for gold as the metal is viewed as a hedge against inflation.
This is the largest and most popular ETF in the gold space, with AUM of $63.02 billion. The fund reflects the performance of the price of gold bullion, less the Trust's expenses. At launch, each share of this ETF represented about 1/10th of an ounce of gold. The expense ratio is 0.40% (read: Russia Attacks Ukraine: ETF Areas Grabbing Investor Attention).
iShares TIPS Bond ETF (TIP - Free Report)
TIPS ETFs offer robust real returns during inflationary periods, unlike their unprotected peers in the fixed-income world. It provides shelter from increasing prices and protects income for the long term.
iShares TIPS Bond ETF seeks to track the investment results of an index composed of inflation-protected U.S. Treasury bonds. It has amassed $34.37 billion in its asset base and has an expense ratio of 0.19% (read: ETF Strategies to Combat Red-Hot Inflation Readings).