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Wall Street Crashes: 5 Defensive ETFs to Your Rescue

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China’s coronavirus outbreak seems to be taking a much bigger shape than initially feared. The virus is spreading fast and wide, with news cases being reported by the government. So far, there are about 3000 cases reported and the death toll in China is more than 100. A few more cases were reported in the other parts of the world too.

The virus is similar to SARS which erupted in late-2002 in China and caused significant short-term economic losses. The global economic loss from SARS was about $40 billion in 2003, per a source. Global markets took a big hit in recent trading sessions (read: Global Low-Volatility ETFs for Turbulent Times).

Thanks to the growing virus scare, the S&P 500 and the Dow Jones lost 1.6% each on Jan 27 while the Nasdaq Composite was off 1.9%. In fact, the S&P 500 (down 0.8%), the Dow Jones (down 1.12%) and the Nasdaq (down 0.5%) were also in the red last week.

All-world ETF iShares MSCI ACWI ETF (ACWI - Free Report) lost 2.7% in the past five days while iShares Asia 50 ETF AIA shed about 4.5% past week (as of Jan 27, 2020). With China being the epicenter of the disease, Asia stocks were the hardest hit.

However, some analysts are of the opinion that the U.S. market is overreacting to coronavirus as it is too early to tag it a global pandemic. Still, we live in an open economy and are likely to experience a spiraling effect of any global event. The timing of the outbreak is more crucial as the world’s largest and the second-largest economy signed the phase-one trade deal just few days back.

Against this backdrop, one can seek refuge to the below-mentioned defensive ETFs until the broader market steadies.

AdvisorShares Dorsey Wright Short ETF DWSH

The AdvisorShares Dorsey Wright Short ETF is actively managed with an investment focus that involves buying securities which have appreciated in price more than the other securities in the investment universe and holding those securities until they underperform. The annual expense ratio of the fund is 3.07% (read: Best and Worst ETFs of Last Week).

Cambria Tail Risk ETF TAIL

This ETF is active and does not track a benchmark. The fund intends to invest in a portfolio of out-of-the-money put options purchased on the U.S. stock market. The fund charges 59 bps in fees.

AGFiQ US Market Neutral Momentum ETF MOM

The fund looks to match the performance that corresponds to the price and yield performance, before fees and expenses. The fund charges 75 bps in fees.

AGFiQ US Market Neutral Anti-Beta ETF BTAL

The underlying Dow Jones U.S. Thematic Market Neutral Anti-Beta Index is a long/short market neutral index that is dollar-neutral. The fund charges 45 bps in fees.

Franklin Liberty Systematic Style Premia ETF FLSP

The fund is active in nature and it seeks to achieve absolute return by allocating its assets across two underlying alternative investment strategies, which represent top-down and bottom-up approaches to capturing factor-based risk premia. The fund charges 65 bps in fees.

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