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Trade-Sensitive Sector ETFs in Focus on New Tariff Threat

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After a calm of about five months, trade tensions have resurfaced with Donald Trump threatening to impose additional tariff, which were delayed in February on hopes of a positive deal. Trump intends to increase tariff to 25% from 10% on Chinese goods worth $200 billion this week and threatened 25% tariff on further $325 billion of Chinese goods "shortly."    

The announcement came as a surprise as both the countries are involved in trade talks with the U.S.-China leaders slated to meet on May 8. The move has marked a major escalation in trade tensions between the world's two largest economies intensifying worries over global growth. This would result in a tailspin for the U.S. stock market, which has been flourishing on optimism over the productive trade deal since the start of the year (read: 5 Top-Ranked Stocks in S&P 500 ETF Up More Than 50%).

Tariff War Dents Economy

According to the latest study, some of the world’s leading trade economists from the Federal Reserve Bank of New York, Princeton University and Columbia University declared Trump’s tariffs to be the most consequential trade experiment seen since the 1930 Smoot-Hawley tariffs blamed for worsening the Great Depression. The study found that tariffs imposed last year by Trump on products ranging from washing machines and steel to some $250 billion in Chinese imports were costing U.S. companies and consumers $3 billion a month in additional tax costs and companies a further $1.4 billion in deadweight losses.

Per the Wall Street Journal report, American consumers have been burdened with $69 billion in added costs because of the tariffs the U.S. imposed last year, including on $250 billion of Chinese imports as well as levies on steel and aluminum (read: US Q1 GDP Growth Trumps Expectations: ETF Areas to Win).

Market Impact

While most corners of the market are set to tumble, sectors, such as information technology, industrials, consumer discretionary and agricultural, are expected to be hit the most due to the fresh China trade tariff. In particular, chip stocks dominate the list of tech sector players with large sales exposure to China.

Below, we have highlighted a few ETFs from these sectors that are on investors’ radar following renewed U.S.-China trade spat:

VanEck Vectors Semiconductor ETF SMH: This fund provides exposure to 25 securities by tracking the MVIS US Listed Semiconductor 25 Index. It has higher concentration on the top two firms with a combined 21.3% of assets while others hold no more than 6.9% share. The product has managed assets worth $1 billion and charges 35 bps in annual fees and expenses. It has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: Chipmakers on Fire: ETFs & Stocks Soaring to New Highs).

Industrial Select Sector SPDR XLI: This is the most popular ETF in the industrial space with AUM of $10.4 billion and average daily volume of 14 million shares. The fund follows the Industrial Select Sector Index, holding 70 stocks in its basket with each accounting for less than 8.6% of the assets. More than one-fourth of the assets is allocated to aerospace & defense while machinery, industrial conglomerates, and road & rail make up for a double-digit share each. This ETF charges 13 bps in fees per year and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 10 ETF Areas to Gain as Trump Delays Additional Tariffs).

VanEck Vectors Gaming ETF BJK: This ETF provides investors with exposure to companies involved in casinos and casino hotels, sports betting, lottery services, gaming services, gaming technology and gaming equipment. It follows the MVIS Global Gaming Index, holding 43 securities in its basket. It is moderately concentrated across components with each holding less than 8.5% of the assets. The product has AUM of $29.6 million and average daily volume of roughly 8,000 shares. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

VanEck Vectors Agribusiness ETF (MOO - Free Report) : This fund is by far the most popular choice in the space with AUM of about $780.9 million. It tracks the MVIS Global Agribusiness Index, which offers exposure to companies involved in agri-chemicals, animal health and fertilizers, seeds and traits, farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations, and trading of agricultural products. The fund holds 58 securities in its basket and charges 54 bps in annual fees. Volume is good as it exchanges nearly 78,000 shares.

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