U.S. stocks staged a nice rally in the past couple of sessions on a slew of solid earnings reports and an increase in oil price. Still, the upcoming election and its outcome will keep investors restless over the next few weeks.
This is especially true as the battle is likely over for Republican Donald Trump, who has been alleged of several sexual assaults. Moreover, the poll after the final presidential debate shows Hillary Clinton having an edge over Trump. According to the CNN/ORC poll, 52% of voters who watched the debate see Clinton as the winner compared with 39% favoring Trump.
Tension on the Rise
The stock market is set for extreme volatility despite the fact that chances of Clinton’s victory are high. Most market participants believe this election will exhibit higher uncertainty than the past election cycles. In fact, strategists at Bank of America Merrill Lynch warned off a near-term correction of 10% or more in stocks. According to them, this year's presidential election could come with a shock and a slowdown in business investments (read: Prepare for a Clinton Presidency with These Stocks & ETFs).
Additionally, a survey by the Wall Street Journal showed that election-induced uncertainty would crimp economic activity for the first time this election year. The latest Federal Reserve's Beige Book survey also supported the slowdown of some business sectors in the country. Added to the weak backdrop is consumer confidence that took a hit in early October, as election is due in just three weeks. As per the University of Michigan, the consumer sentiment index slid to the lowest level of 87.9 since September 2015 from 91.2 recorded last month.
Further, in the final face-off between Clinton and Trump, the Republican candidate turned hostile by saying that, “he might not accept the outcome of the November 8 election if it doesn't go his way.” This has created the possibility of an unsettled outcome that could create chaos in the overall economy and lead to a broad market sell-off.
Given this, we have highlighted five ETFs that could weather the election volatility and reward investors’ going into the Election Day.
SPDR Gold Trust ETF (GLD - Free Report)
No matter who gains control of the White House, gold will likely be undisputed winner. The yellow metal is often viewed as a store of value and a hedge against market turmoil. The product like GLD tracking this bullion could be interesting picks to play the election-related volatility. 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 the ultra-popular gold ETF with AUM of $39.1 billion and expense ratio of 0.40%. Volume is heavy, exchanging 11.2 million shares in hand per day on average. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: Are Gold ETFs Set to Shine Again?).
iPath S&P 500 VIX Short-Term Futures ETN (VXX - Free Report)
While volatility products have been terrible performers over the medium and long terms due to a contangoed market and a steep roll cost, they are intriguing picks during periods of turmoil or uncertainty. That being said, VXX could emerge as another winner. The ETN focuses on the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility in the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second months VIX futures contracts. The note has amassed $1.6 billion in AUM and trades in heavy volume of more than 26.4 million shares a day on average. It charges 89 bps in fees per year.
iShares Edge MSCI Min Vol USA ETF (USMV - Free Report)
Low volatility products generate impressive returns or often outperform in an uncertain market while providing significant protection as these funds include more stable stocks that have experienced the least price movement in their portfolio. As such, USMV could be a great pick with AUM of $13.4 billion and an expense ratio of 0.15%. It offers exposure to 176 U.S. stocks having lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. The fund is well spread across a number of securities with none holding more than 1.52% of assets. From a sector look, health care, information technology, consumer staples, and real estate take the top four spots with a double-digit allocation each. The fund trades in solid average daily volume of 3.9 million shares and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (read: Low Volatility ETFs in Vogue Despite a Bull Market).
iShares Global Infrastructure ETF (IGF - Free Report)
The ramping up of infrastructure spending has been the key initiative for both the Democratic and the Republican presidential nominees. As a result, IGF could move higher ahead of elections irrespective of the outcome. This fund offers exposure to the infrastructure stocks (transportation, communication, water, and electricity services) from around the world by tracking the S&P Global Infrastructure. Holding 75 stocks in its basket, the fund is pretty well spread across components with none holding more than 5.05% of assets. Investors should note that America accounts for just 38.5% of the portfolio while Canada, Spain and many others receive a single-digit exposure each. The ETF has accumulated $1.1 billion in AUM and sees volume of more than 140,000 shares a day. Expense ratio comes in at 0.48%.
PowerShares Aerospace & Defense Portfolio (PPA - Free Report)
Defense is another sector that is protected from election results as both parties seek to strengthen this field. While Trump intends to build a strong U.S. military base worldwide and increase military spending, Clinton focuses on areas like cybersecurity and terrorism. So, PPA should benefit from this trend. This ETF offers exposure to 51 companies that are involved in the development, manufacturing, operations as well as support U.S. defense, homeland security and aerospace operations. It tracks the SPADE Defense Index, charging 64 bps in annual fees from investors. Each security holds less than 7.2% of the portfolio. The fund has so far managed assets of $276.8 million while trades in a lower average daily volume of about 48,000 shares. It has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (read: Should You Buy Aerospace & Defense ETFs Now?).
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